Check out Dan Klein's excellent response to Sunstein and Thaler's “Libertarian Paternalism is not an Oxymoron” paper. Dan basically calls bullshit and accuses S&T of arriving at a provocative title by fudging the meanings of 'libertarian' and 'paternalism'. Sunstein's reply to Klein is pretty pathetic, as Klein notes.
S&T strike me as holding the utterly dull and correct position that the design of institutions, insofar as they are going to be designed, ought to take into account the effects that they have on human well-being, and so if people are likely to do better under one of two non-coercive institutional schemes, pick the one under which they will do better. How this principle is patricularly libertarian or paternalistic is beyond me, and Klein too.