No job is worth losing your soul. This was not the first or least incident. There is no way this was the only time JoePa was aware of Sandusky's tendencies. It's now obvious that's why he was forced out of coaching in 98 at a young (for coaches) age.
What if, (I don't know your job) you are a boss of company/group whatever. Are you going to know every detail about each and every co-worker who work under you? I am the main IT guy here and I don't know every details. I hope everyone here are law abiding citizens. What if one of your subordinate was distributing drugs and you report it (higher up) and nothing turn up? what if you get HR to search the desk and found nothing? are you going to continue to pursue after that? what proof you may have during THAT time? How are are you willing to go? are you willing to stake your own rep/job on the line to go after someone on a hunch? and/or second hand info at the time. (again don't go hindsight route) while it is easy to say "Burn baby burn em" now, sometimes it is not that easy.
Now, at this time, as spectators we have evidence that Joe Pa reported ONE time (that he was aware again, from 2nd hand info) now if he witness himself and didn't report, then it would be a different story. Why didn't the other coach report to the police? (I don't think he did either from the articles. I may have missed it)
Added at: 13:46
I understand you're playing devil's advocate here, but Sandusky was already retired by this point, so there was no job to be gunning for.
Also, the article Piotyr linked to (which, admittedly is based on rumor) coupled with the grand jury report suggests that Paterno knew in '99 that Sandusky was a child molester. If that is the case, then the 2002 incident and his lack of action becomes all the more damning.
I am playing Devil's advocate but also the world is not simple black and white. We are just spectators in this whole debacle. We only have info what the press given us (and some grand jury information being release) it is interesting and sad to see that we (including myself) sometimes are quick to jump and ready to burn someone before all the evidence.
Trust me, I was on the same boat (burn em all) when the news broke, but then I thought about how the world is run and maybe some innocent people and some partially innocent people are under fire. Is it right? no, but there are many more people who are willing to "sweep under the rug" on some damaging event than cleaning it out.
Have you notice that a lot of scandles are usually involve large corporation/business/entity?