wash it with TSP, prime and paint!

It's important to degloss and degrease the paneling first. You can TSP it, as mpoulson has suggested, or you can clean it with a Mr. Clean Magic Eraser. Either way it must be rinsed and allowed to dry thoroughly, overnight would be good.

Buy a quality primer. You can have the primer tinted to match your final wall color. Priming/painting will work best with two people, one to brush into the grooves and one to roll the primer/paint on. Be sure to open all your windows when you prime! And follow the instructions on the primer can as to when you can put your first coat of paint on.

A long nap roller works great to get into the grooves.

I had this type of wood paneling in my den and took it down. It is made in large 4 feet by 8 feet sections. Glued in place. I would get rid of the popcorn while your at it. You'll have some repairs to do, but it should be too bad. When you paint, use matte finish. Matte is washable and doesn't reflect light so the color is truer. It also doesn't show small dings like a satin finis would. Use flat for the ceiling. It is cheaper and you are not likely to need to wash it.

Be sure to prime with oil based primer, then you can put latex paint over. Will probably need two coats.

Do you want the look of painted paneling with the grooves??? For the amount of work you will need to do in proper cleaning , priming then painting you may want to consider just taking it down....

November 2012

The best way is to remove them. And paint the drywall behind