I, personally, am not a big fan of 'covering up' the paneling. For some reason, you may end up with more than you bargained for.
Of course, it's the least expensive way to go but you may not be 'happy' with the results down the road. This may sound-offish but paneling, as I know it, isn't made to be papered over, spackeled, and/or painted. Yes, it can be done but I'll tell you, you will KNOW that it's been done. In other words, the 'finished job' will not look like, say, wallpaper on drywall. (They have a different 'look'.) SO, what should you do?
Well, you could go the 'cover up' route and see how it goes. If you are pleased as the years go by, then leave well enough alone. If, on the other hand, you're more of a do-the-job-once-so-you-don't-have-to-do-it-again person, like me, then remove it. The paneling may be nailed AND glued to the studs (which is no problem because you can hang the drywall directly), or, it may be nailed AND glued to drywall (in which case you may have to remove BOTH drywall and paneling. If you're careful, maybe you can remove just the paneling in which case you may have to 'cut out' the glue, and then spackle.)
For more info on this subject, read Painting Paneling. If you need more 'help', ask away! My best to ya and hope this helps.