If you were the paper's editor, would YOU have taken the money?
It's not the editor's job to make a judgment on this guy. If his immediate family wanted the obituary, then I would run it for their sake.
I could place the ad and pay for it online. I bet it's appearance in the paper is a lot more automatic than coordinated by the paper.
It's a bizarre act by the family.... but it's vital that you get it straight in your head that the newspaper didn't write that obituary, the family bought space to do what they wanted.