I have tried to to the same thing before and it simply will not meet your expectations. In order to fill the grooves you would need to use a joint compound (wood putty would be too expensive and time consuming). What I found was that the paint and joint compound would stain from the moisture in the wood. You can however use the joint compound to fill all the grooves, allow it to dry, and cover with wallpaper. I ended up using a self adhesive vinyl wallpaper and it turned out nice. It doesn't cost a whole lot more either.