[RPG] worry about individual armor pieces

Mithral Chain shirt would be Medium (treated as light for all but proficiency)

The relevant parts of Mithral are:

Most mithral armors are one category lighter than normal for purposes of movement and other limitations. Heavy armors are treated as medium, and medium armors are treated as light, but light armors are still treated as light. This decrease does not apply to proficiency in wearing the armor.

The relevant part of Kilt are:

When you add an armored kilt to a suit of light armor, the set counts as medium armor. Likewise, a kilt and medium armor counts as heavy armor. Adding an armored kilt to heavy armor has no effect.

Firstly lets address: "I would like to add that the armored kilt table itself does not mention or specify any movement reduction." Once you stop using a kilt as a piece standalone armor the rules stop caring about what category of armor used to be. (making Mithral kilts irrelevant) It is now part of the new armor (Sean K Reynolds says that you cannot stack enchantments with a +X on a kilt. He is the best authority we have for now, and it supports common sense)

A kilt adds one to the armors category for all purposes when you attach it (including movement). If you somehow managed to make a kilt that was medium and it had the above rules text it would still only add one to your armors category. Noticeably, this means you require proficiency in the new category of armor. (Medium for the Chain shirt)

Mithral does not actually modify the armor category. It allows you to treat it as lighter for purposes of movement and other limitations. Mithral and Kilt have no actual interaction.

In summary:

• Kilt: Add one to armor category for all purposes
• Mithral: Pretend its one lower for all restrictions (except proficiency)

Thus the following combinations are possible:

Gear: Treated as for restrictions(Proficiency required)

• Light Armor w/ Kilt: Medium(Medium)
• Light Mithral Armor: Light(Light)

• Light Mithral Armor w/ Kilt: Light(Medium)

• Medium Armor w/ Kilt: Heavy(Heavy)

• Medium Mithral Armor: Light(Medium)

• Medium Mithral Armor w/ Kilt: Medium(Heavy)

• Heavy Armor w/ Kilt: Not possible

• Heavy Mithral Armor: Medium(Heavy)
• Heavy Mithral Armor w/ Kilt: Not possible

To throw in a little common sense
The kilt should probably be made from Mithral if the armor is made from Mithral to allow Mithral to apply. This is in no way RAW however.

Additional Source

Yes, this build is competitive. Compared with a strength based dueling paladin, you'll actually be better off in many ways. Though you can't compete with a great weapon fighting paladin in damage. To illustrate this: let's compare some general build options.

Let's assume there are two paladins: Strong and Dexter. Strong and Dexter have the same stats except that Dexter has dexterity equal to Strong's strength, and strength equal to Strong's dexterity. This means that for the purposes of attack rolls and damage modifiers, the two are exactly the same. For that reason, I'm omitting modifiers when I make damage assessments below. I'm also not including magic items because with enough magic, you can make anything work.

Sword and Board

Dexterity is very competitive here, if not the best choice. In this case, both paladins take the dueling style and wield a weapon in one hand and a shield in the other. The highest damage one handed weapons all deal 1d8 damage. For Dexter, that means using a rapier. For Strong, it could be a longsword, warhammer, battleaxe, or rapier. Regardless, because the damage die is the same, and the paladin's relevant ability score modifiers are the same, their damage output is identical. Eventually, when Strong gets plate armor, they will have 1 higher AC than Dexter does (18+2 vs 17+2, as you have noted) Strong also has options to deal all three types of physical damage (slashing, bludgeoning, and piercing). Dexter will only be able to deal piercing damage, but their initiative, stealth, and dexterity saves will all be higher than Strong's. Dexter also has much better ranged attack options since they're as effective with a bow as with their rapier.

In return for being 5% easier to hit compared to Strong with plate armor, Dexter will be better at range, go earlier in the initiative more often, and make their dexterity saving throws more often than Strong does. Honestly, that's a pretty fair trade off.

Great Weapon Fighting

Dexter can't compete with Strong's damage here. Dexter keeps their shield and rapier. But Strong takes great weapon fighting and a heavy weapon. Their damage die goes up to either 1d12 or 2d6, depending on which weapon they choose. And they get to reroll 1s and 2s on that damage. Using the results of the How much damage does Great Weapon Fighting add on average question, that works out to roughly an extra +1 damage on average. So, strong will be dealing about 8 damage per hit before modifiers regardless of which weapon they choose. Strong could also take the Great Weapon Master (GWM) feat to further increase their damage output. Dexter is still dealing about 4.5 per hit before modifiers with their rapier and doesn't really have any feats that will consistently increase their damage to Strong's level. So, Strong is dealing twice as much damage as Dexter on average. However, Strong loses their shield. So even with plate armor, Dexter now has a 1 AC advantage (17+2 vs 18), making them 5% harder to hit than Strong. And Dexter is still better at initiative, ranged attacks, and dexterity saving throws.

Two-Weapon Fighting

Here's an interesting option. If Dexter has 13 strength, they can take one level of fighter to pick up the two-weapon-fighting style. They also take the Dual wielder feat so they can use two rapiers. Now, Dexter and Strong have the same AC (17+1 vs 18) and Dexter deals an extra 4.5 damage on average with their off hand attack. up until 4th level, Strong will deal about 8 damage per hit and Dexter will deal about 9 damage over two hits. So Dexter hits harder than Strong! As long as both attacks hit anyway.

The issue is that once the paladins hit 5th level they get an extra attack. Strong now deals 16 damage over two hits (8 damage twice), and Dexter deals 13.5 damage over three hits (4.5 damage thrice). And that doesn't factor in the bonus damage that GWM offers Strong. At this point, Strong hits harder than Dexter does, and again Dexter can't do much to catch up.

Final Thoughts

This is a very quick analysis. Enough to get the point across I think. There is no way for a Paladin using dexterity to deal the same damage as a paladin that's focusing on dealing as much weapon damage as possible. If you want to deal maximum damage, you have to go with a strength paladin. But dexterity gives you much better survivability. Dexterity saving throws are very common, and can deal some really high damage (think fireballs, lightning bolts, and fiery dragon breath). And with higher dexterity you can go earlier in the initiative and position yourself where you need to be as soon as possible. Plus the large damage bursts that paladins are known for because of their smite is, as you have pointed out, not dependent on weapon damage. It's just based on spell slot level. All of that is to say, the survivability and flexibility is something that will definitely serve you well and I personally think is a reasonable trade-off.