I'm worried about the finish of the walls behind the panelling, as they're basically mud on rock and the panelling has been up for over twenty years. If they're a mess we can't afford to re-plaster it as it's a fairly big room (approx. 40 x 30').
Priming and painting will make it look much better, you can use any color you want. For our kitchen we used a deep rose color, and for our living room, we used a light green(not ugly green, but it's hard to describe. We didn't fill in the spaces between the panels( the thin strips of whatever it is), but painting it really makes it look good, and you can always put border up near the top.
I still have a gap of panelling showing under our kitchen cupboards that I haven't done anything with, when we ripped down our old cupboards and put up the new ones, we didn't know their was panelling behind. Of course I can't get the same color of paint as what's on the rest of the walls because they don't sell it anymore
so I have to come up with something creative that won't look stupid and that's durable because it's above the kitchen sink.