You should put an option for both, because I would vote that. If you are playing in 1st person and get paralyzed, then you should fall in 1st person and not be able to access your inventory. Same thing for 3rd person. You should fall and not be able to do anything until the spell wears off.
I've always thought it'd be cool to be naturally paralyzed, because then you'd be paralyzed for life and that'd mean death or unless someone could heal you. But that's for another discussion.
You are kind of sadistic aren't you? O.o
I don't know how to explain this but if it is in 1st person then the camera needs to point in the direction your head faces. Like if you were paralyzed in 3rd person and your body was laying on it's side then the 1st person view should be close to the ground and sideways. If you fell face first you should be looking directly at the ground. On your back then you see the sky. In oblivion it really took away the terror aspect you would get if you were paralyzed by letting you still move the camera.