Yo, played paladin on alliance side for the entirety of Vanilla, sits at 110 now though so a bit out of touch with comparisons to live, but I can probably slot in here. :-)
Your raid role is pretty much tank healing, debuff removal (cleansing) and buffing. You'll be competing with priests as the top healer class. Druids seemed pretty niche for most of Vanilla to be fair (a sort of jack of all trades, master of the Mark of the Wild buff only). I haven't read too much about Classic (not even 100% sure I'd play it as I feel that I accomplished almost everything last time around) but at the start of raiding I buffed every single member of the raid every 5 minutes, which means I spent 20% of my time just buffing (more if I had to go looking for people). Eventually Greater Blessings were added that lasted 15 minutes and buffed every single member of a class in one go, which means you pressed 8 buttons every 15 minutes or when rebuffing after a wipe, this... was a MUCH more pleasant experience.
You can "get lucky" and get to raid as retribution, but it's really boring (if you dislike anything RNG about current game, just wait until you re-live Seal of Command) and you'll pretty much have your weapon choice pre-defined (Nightfall) in a more serious setup. We ran this for a few months towards the end (iirc), but you could probably do it from the start. I probably won't have to tell you that raiding as protection (ie. tanking) is off the table in raids as it was a severely underdeveloped spec for the entire duration of Vanilla.
As far as talents go, 29-30 points in Holy were usually mandatory (I think we allowed people to run
29/11/11 with Kings and SoC, but few of us did).
33/05/13 was quite common, picking up SoC to allow yourself to play outside raids.
35/11/05 was equally common, picking up Kings, possibly the strongest buff in the game.
33/18/00 was usually picked by at least one, if not two paladin(s) to ensure we had Imp. Concentration Aura (and Kings) for raids.
30/21/00 was a build that we started using mid-Naxxramas I think with Imp. Concentration Aura and Blessing of Sanctuary. This paladin (we had one) was ever-present and guaranteed a raid spot. This could probably be done in earlier raids as well I think.
I'm not sure how picked Imp. Retribution Aura was, but we might have had someone running with 17 points in Retribution at some point as well. Thing is, the more utility you packed the higher the chance you'd get slotted in for raid. Ideally you wanted to have everything that paladins could bring inside the raid in the best state possible (ie. Improved this, improved that). We (paladins) usually let each other know when we swapped specs though so to ensure we could always bring the best of everything.
This is raiding at a higher level though. You could heal -just fine- with only 20 points Holy (Illumination is too good to pass up for healing, even for other specs). If you're in a more relaxed guild this would work just fine and you'd be able to enjoy the RNG-machine that is the retribution paladin outside of raids as well, or experiment with protection, who knows what your paladin heart desires :-) It's a perfectly fine build for 5-mans, you'd just spend a bit more time drinking as you'd have less mana back lacking the extra crit further down the tree.
As for your questions/ideas you're mostly right. Holy Shock was never used as a mana-efficient healing spells (and absolutely not used on cooldown), you'd use it purely as an emergency spell (ie. you -had- to move and the tank was dying). As far as downranking goes I believe I used Holy Light rank 3 or rank 4 for a very long time (as it smashed Flash of Light for mana efficiency), only towards the end when I had crazy good gear (with enough mp5 and %crit) and the tanks started taking more damage I started using max ranks.
Go Paladins!
Hope this helps. :-)