In a time of crisis a lot of people like to go back to folks who have had proven leadership. Not to mention it is hard for some people to quietly ride off into the sunset, especially when war is breaking out.
As for unrest in the empire, Paladin was highly placed during WCIV and there weren't any indications that was causing unrest. In fact, if anything, having someone like Paladin in chareg, might make the cats less likely to do something, because his record is backed by concrete actions. Also, it isn't clear what he is doing, at least to me. He makes references to being brought out of mothballs, but the "stationary" that both his letter to Blair and Casey are written on still refer to him as a Senator and a retired general. I assume with his war record he would be a good one to push things trhough the armed services committee. In fact, I'm betting that is a lot of what Drake and Marshall are doing is testifying for more funding, etc.