I think he should stay.
The government is still shiny and new, his breach pre-dates his ministerial appointment, and there are understandable reasons of privacy behind it....I'm reminded of Lord Browne of BP. Laws has owned up and has explained. Besides, the Commons is a glass house and not many will want to throw stones.
Some of the worst offenders from the expenses scandal are still in the House of Commons and Brown has kicked some sleazy and downright disgusting characters upstairs into the Lords. The loathesome idiot Prescott, screwing his secretary, a breach which would have been a sacking offence in any normal walk of life. What about those Labour ministers resurrected following scandals, such as the odious Mandelson, who has deceit written through him like a stick of rock?
The key test is public opinion, of Laws and of MPs in general. I think the public will want to give him a chance as a new minister in a new government. There's an instinctive streak of fair play that runs through public opinion. This may also give added impetus to the momentum behind reform.
So Cameron and Clegg should support Laws, keep him in post. Any further breaches and he's toast.
Of course, Laws could always stand down and force a by-election to test public confidence, returning to ministerial office if re-elected....just an idea....it would test the recall proposal.
After a cup of coffee, I reckon Laws should stand down and fight his seat again, testing his reputation with the public. This would be in line with the spirit of reform and would gain much credibility.