Exactly. In Paulies' POV it may have also acted as a warning to Jimmy and Henry. "If I can do this to one of my own, don't think I wouldn't do it to you if you get out of line".

This brings up an interesting sidelight:

Since Tommy wasn't a made man at the time of Batts' murder, the Gambinos were within their "rights" to whack him without consulting Paulie. But they probably brought their beef to him because they figured that since Tommy was "with" him, he should have the responsibility for getting rid of Tommy. Both Jimmy and Henry were complicit in Batts' murder. But Paulie arranged for only Tommy to be whacked. It was a brilliant move: he proved to the Gambinos that he believed in the Mafia "code of honor" (never f**k with a made man); now they owed him one. He also got rid of Tommy, whose wild behavior was a serous liability to Paulie, and retained Jimmy and Henry, who possessed the ultimate Mafia virtue: they were good earners.

He was a great earner and brought in a lot of money for Paulie and the rest of the guys. Thats mainly why his craziness was tolerated.
Plus, he tipped BIG. lol. THAT and also nobody could really tell where they stood with Jimmy. He was a smart guy! I have WISEGUY and in the book it states, "At dinner he could be the nicest guy in the world, but then he could blow you away for dessert."