This question gets asked a LOT on the Forum. You can search the main Forum page for the word paneling or suffer through the 'links' I've provided. There are probably more links on the Forum but I stopped 'grabbing them' after a while. In short, it's me talking here, I just assume get rid of the paneling and paint. What was once a maintenance-free 'wall covering' will now require periodic maintenance. Plus, it may not turn out the way you want. Plus, it's not a 'modern thing to do'. Yes, it will cost some $$$ to replace the paneling and put up drywall but at least you get what you REALLY want. Your best situation is if the paneling is installed DIRECTLY on the studs. Otherwise, it's probably glued to the underlying drywall. That means you'll have a bigger mess when doing the demolition. AND, when the walls are 'exposed', you can do all kinds of electrical upgrades like add fans, lights, cable, and phone lines. (Isn't this fun??!)
Well, here are the links. Suffer through them. They talk about painting kitchen paneling, wallpapering paneling, and painting paneling. So, even though the links may not be directly related, I'd read them anyway because there is useful info in them.