The Paladin class section of the Player's Handbook states that "A paladin gains the power to turn undead and fiends when he reaches 3rd level." This ability is said to work as priests' undead-turning, but fiends are included. I think this makes perfect sense, because in the case of paladins it's an expression of their opposition to creatures of evil, while priests, to my mind, reassert deities' monopoly over life and death and have no special objection to demons and devils (priests don't have to be good-aligned).
Now for implementing this... Turn Undead in the IE games obviously works only against the General AI value UNDEAD. Is there any reason why creatures with the DEMONIC race (and variations on it) shouldn't be patched to be UNDEAD? Currently their General type is MONSTER, which does nothing for anyone. They could retain their race etc. for classes that deal with fiends specifically, like the Cavalier. The Undead Hunter could be changed to have bonuses against specific races - ghouls, skeletons etc. As for actual immunities and protections of undead, those don't come from their General type but from equipped items, so fiends would receive no special benefits.
Most spells that damage undead, like Holy Word, also damage all evil-aligned creatures, so there is a large overlap. Spells and effects that do deal with undead and only undead use the Use EFF opcode targeting UNDEAD, but they can as easily target race values. There may still be some inconsistencies and gaps, but if players get a fair warning, a mod like this could give their paladins an interesting new option, especially in SoD, where we get the Paladin in Hell scenario.
