To be fair most of the (small number) of pallets I've burnt have been broken in one way or another so they weren't up for much reuse. I suppose they wood ought to be recycled for another use if it was any good. Some pallet do have nice thick boards, but are a Heinz to get appart without breaking them.
Is it ethically wrong to burn a pallet that is offsetting carbon fueled (gas) space and water heating

I think not, as long as the pallet is not removed from a recycling chain. The pallets I've used are thrown out by a company as not required anymore, some are picked up and reused (if any good) by a local salvage and recyling firm who put their goods on them. However this is a adhoc arrangment and the salvage firm turn up now and again so its not really a proper recycling chain.