Are Paladins Gimped when using 2-H swords VS Shields?

You don't lose "half" your skills. The only thing you lose out on is the chance to block and some WDEF/MDEF. That's it.

The only time it's really imperative to have blocking is maybe at Empress.

Other than that, blocking is really over-glorified; Paladins are invincible with Achilles, Power Guard, and especially Divine Shied alone. With enough STR and equips dumping DEF at you, you can cap WDEF without Shield Mastery.

The only significant advantage Shield has is that you'll be using a 1h weapon... which means you attack faster. That advantage disappears as soon as a Buccaneer joins your party or if you have a combination of BaM aura, dSI, Inner Ability speed boost, or you're using a stonetooth.

But if you cap with a 1h setup, then 2h becomes absolutely pointless in every respect since no advantage exists anymore. Only thing left is uniqueness or prestige.

Adding a shield gives you like 6 more lines of potential too, which I judge to be significantly better than a perfect 2 hand C: Though it also costs more money for that type of stuff, but if you can perfect scroll a 2 hand sword, I assume you can perfect a shield and 1 hand sword.