What is under the paneling? I think your answer is going to be drywall, but it would be better to remove the paneling to minimize the height difference, And who knows? There could be an acceptable wall under there.
Door jambs and electrical sockets are easily brought flush to new drywall and existing moldings re-applied. You will need to cut or buy thin wood strips to glue/tack onto jambs to bring them to the level of drywall.