IMO, what should happen is that Penn State's football program should be shut down and allowed to re-open only when every single paid position associated with it is filled by someone with no connection to Paterno, the college or the area. Football programs have been severely sanctioned for far less grievous reasons than this one.
Scandals like this one that went on for years with multiple victims do not happen unless there is an attendant cover-up. The day that McQueary saw Sandusky in the shower with a young boy was not the first day that suspicions arose about Sandusky. Long before that episode he had been removed from his coaching position under questionable circumstances, yet was allowed privileges to continue using the facilities after his removal. The Grand Jury report detailed many other signs going further back that were ignored or swept under the rug, and leads to the implication that victims were sacrificed at the expense of the football program at Penn State.
I think that it's impossible to separate Joe Paterno's two legacies - one being the positive contributions that he made over the years to the community, the college, and his players, the second being that he was the revered Head Football Coach during a long period when a pedophile was able to take advantage of his connections to the school, and the protection afforded him by the head coach, in order to molest young boys both at the facilities and away from them. It will be very surprising if any obituary for Joe Paterno does not make mention of the scandal, because he was right smackdab in the middle of it and didn't do enough to stop it. Neither did many people who were right there with him, but nobody is saying that Joe Paterno is the only person who was responsible. He's one of the most powerful among them, but he's not the only one.