Yes, without any doubt I think Joe Paterno should have been fired.
I'm new to the USA, so learning about the power and money that is involved in college sports has been quite a revelation, but no sports team is important enough to sweep this behaviour under the carpet.
I've read about how a great many students, football players and others hold Joe Paterno in huge esteem; it's almost as though he has become a kind of national father figure. But obviously after being told about Sandusky's alleged behaviour he decided to act upon it so far but no further. Having abided by the letter of the - college - law by informing his immediate superior, he did nothing else, presumably for the sake of not bringing the college or his team into disrepute, and to avoid any threat to the enormous financial enterprise that the team represents.
Anyone who sees, hears about or knows of an incident of child molestation and does not report it to the police is morally bereft, regardless of how many people may admire or look up to them.