Keep in mind that it depends on when you play Mystical Paralysis. If you do it when the character is proposed as an attacker, then you are correct. The proposed attacker is exhausted, and when the game checks the legality of the attack, it will see one of the proposed attackers is exhausted, so the whole attack will not be legal.
If, however, the attack is made 'legal' (meaning nothing has been done to prevent it), the proposed attacker will exhaust and become an attacker. At this point, nothing you do to the character will make the attack illegal. Exhausting the character at this point would be pointless, because it is already exhausted for one.