I asked myself this same question when the use of Bearer's tragic loss was the gain of this high profiled feud. Here things to analyze when one asks this question .
First of all, I would be almost completely certain Undertaker is okay with this exploitation. As those of us with even an working knowledge of the internal workings of WWE knows, Undertaker is one of the most powerful men in the company. The man who serves as supreme judge of wrestler's actions, the man who was the sole guy to knock down the door and got answers from Vince after the screwjob, the same guy revered for respecting the business with an old school mentality kept from his uprising of the territorial days. Undertaker is a protector of the business, yet isn't afraid to cut the bullcrap, hence it is obvious that he is okay with this, or else we wouldn't have seen what we saw. Undertaker knows how loss and cheap heat off it can generate additional emotion to viewers attached to the diseased, hence they get mad at the heel, want to see said heel's butt get kicked even more and an now on the fence buyer buys the ppv. Undertaker's streak has been kept interesting in a larg part through not only the streak itself, but the outside means surrounding it/the side story attatched. HBK had the light vs Dark theme, Kane had the legendary attitude era stronger brother storyline, Orton had the young up and comer vs the ultimate veteran and the list can go on when discussing the best "streak feuds". Undertaker vs Punk had the generic heel face elements, but with a little added heat, the feud now becomes personal to the Undertaker, adding an element to the feud to propell it to a higher degree than just generic competition. I think we would all agree Undertaker stands not only as one of the greatest wrestlers of all time, but as one of the best embassadors and symbols of justice in the business' history, so if Undertaker (who was friends with Paul Bearer as well as wrestling for him) is fine with it, than it seems that fans should be a little more open to accepting as well.
It needs to be said that wrestling thrives off emotion, from wanting to hate the girl getting, cocky ,wealthier and better than you Flair to the ultimate blue collar badass Steve Austin who so many lived vicariously through. It is hard to determine what is right and wrong for wrestling in every facet, even hardcore wrestling. I mean many used to say The Sheik was overly horriffying with his never before seen scary tactics jumping guardrails and taunting audiences while using foreign objects. Than the line was pushed with Abdulah's bloodfests for matches with guys like Colon and Bruiser . Things esculated to Cactus Jack in time bomb death matches and the inception of ECW, which esculated to CZW and Backyard wrestling leagues. All along, what is "too far" morphed through the years as things seem more ok and tame. Than you have the evolution of sex in wrestling and we judge what extent of use is ok for a storyline? Is it okay to run an lesbian storyline or even an pregnancy angle? Some would say no because that is offensive to an portion of the viewers and goes too far for an entertainment, others would say wrestling has edgy roots, sex is needed to advance some heels, and wrestling is entertainment, so these people's view is as long as the overall quality doesn't suffer, anything is okay. Sandman being crucified, Undertaker's sacrifices, Slaughter playing an Iraq sympathizer, Harlem heat's original gimmick as slaves, Eugene the mentally ill wrestler, gun portrayal in wrestling as the list goes on so does the debate. My point in all this is there is no definitive answer to what is "tasteful or "appropriate", since the answer to this lies in the individual's beliefs.
Last to consider for this discussion is the whole episode of raw last week. Sure Undertaker's tribute to his manager and friend got cut short in the name of the feud by CM Punk, yet the actual words CM Punk said "I'm sorry for your loss... at wrestlemania" were clearly said in character, and emotion envoked built heat for the feud successfully. Undertaker still ended out at the final scene and united with his brother Kane for an substitution for a formal tribute to their former manager Paul Bearer. Not to mention RAW dedicated the show to Paul Bearer, showing him proper respect throughout the rest of the show. This established WWE didn't take Paul Bearer's death lightly, and the begginning only served as a means to build heat with no other alterior motive in my eyes.
Due to the fact that the rest of the show was done in tasteful tribute, judging off wrestling's radical history and since the begginning of the segment was done in pure storyline advancement, personally I am cool with what went on.