The dummy runner should be nowhere near the defenders.

Attackers who are in front of the ball when it's passed should be ruled offside
IMO.

A pass behind a dummy runner is all well and good if the decoy is onside and the receiver is running from deep.

But the number of easy tries off shallow passes with the dummy runner well ahead of play and disrupting the defensive pattern is boring. Again, IMO.

A rule change would bring a bit more variety to backline shots.

Having seen it again it was kind of a lazy challenge as he seemed to know what he was doing on this occasion. If he tackled the player like that and the player had the ball he'd effectively have tackled the player and allowed him to score anyway as the player lands over the line!

On the other hand Paea puts the shoulder in on him and that player is "obstructing" Paea from getting to the ball carrier so quite possibly a penalty the other way could have been given.

In this instance though after reviewing it I would say Paea knew he was attacking a none ball carrying player and the penalty was legitimate.

The point still stands though, should defenders be punnished for falling for what effectively the attacking team are aiming for?

Yes - the defender needs to read the play better and react faster. The use of dummy runners is something that SL is still behind the NRL on.

if you can tackle the dummy runner it leaves it blatantly open to big cheap shots

In virtually every game you'll see dummy runners knocked over by a defender. It's rarely penalised though.

The difference is, if you misread the play and are attracted by the dummy runner, you know you've got it wrong before you make the tackle.
Ok, you may collide, but if you follow through with the tackle you should be penalised.

Obviously the dummy runner has a resposibility too. If they run straight at a defender, they are penalised as it is intended obstruction. They have to run at the gap.