Bishop Zurek has issued a public clarification on Fr. Pavone.
It is odd that the Bishop says Fr. Pavone is suspended, but with faculties in his own diocese. This is not a suspension. Every priest ordinarily has faculties in his own diocese. In fact, priests only have ordinary faculties by incardination, typically by association with a diocese or religious order. Fr. Pavone can say Mass and hear confessions and dispense other Sacraments according to the usual rules and practices in the diocese. If a priest were suspended, he could not do so.
The limitation on his ministry outside the diocese is a ruling by the Bishop, which is within his proper authority, but it is not a suspension.
UPDATE (27 June 2012) — The Holy See has ruled on Fr. Pavone’s appeal, in his favor. The ruling is that he was never suspended.
Is Bishop Zurek’s action a sin?
In my view, it is neither reasonable nor just for Bishop Zurek to prohibit Fr. Pavone from his prolife work. He is not accused of any sin or crime. His work on prolife issues is in full accord with Church teaching and with the work of the Bishops on the same topic.
I would go so far as to say that this restriction, if it continues for more than a brief time, is a sin by the Bishop, based on the reasonably anticipated harm to the prolife cause by the loss of Fr. Pavone’s good work in that area.
The third font of morality, circumstances, weighs the reasonably anticipated good and bad consequences. An act is a sin under that font if the reasonably anticipated bad consequences outweigh the good. What good is accomplished by prohibiting a priest from working on prolife issues? He could still serve the diocese, and work with priests for life in his spare time. There seems to be no good that is done by removing him from this activity, and much harm. So it would be a sin for the Bishop to continue this restriction indefinitely.
However, a brief break from any work, for prayer and reflection, is not a sin, since it may help the work when one returns to it.
Updated (10/10/11) to add: The fact that Bishop Zurek is exercising his proper authority over a priest in his diocese does not imply that his action cannot be a sin. When a person has authority, and exercises that authority, he still must abide by the three fonts of morality. If he acts with a bad intention, or if he commits an intrinsically evil act, or if he can reasonably anticipate that his action will do more harm than good, then he sins — even if his action is also an exercise of the authority given to him by the Church.