I think the Appolonia sequence is the real turning point for Michael.

Obviously, he's in pretty deep before that, but I think the killing of Appolonia really shows him that he can NEVER let his guard down. Before her murder, he seems pretty relaxed in Sicily, as evidenced by his candor to Vitelli.

In any case, it's hard to criticize the guy as paranoid when his father's been shot and his wife's been blown up.