I have used Plybead from Georgia-Pacific. It is plywood with a beaded T&G face. It has worked well for me as wainscoating in a bathroom. I sanded the front face and primed both sides before installation. Use nails & adhesive to install.
Below is a link with more info: http://www.gp.com/panels/plybead.html
You can order from your lumberyard if they don't have it in stock.
I like the 1.6 inch pattern.
They also have wianscoating paneling which I have not tried: http://www.gp.com/paneling/wainscotpanel.html