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I agree with the wife. She has good taste. Nothing worse than painted paneling, even 70's paneling. But I could see wallpapering over some of it. Like Dennis says, you have to fill the grooves and joints. The chair rail idea would work with paper, too.
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If you know there are good walls underneath, then the paneling can come down quickly and you still have a small project on your hands. If the wall comes with the paneling or it's just crappy underneath, then you've just turned a quick paint job into a large undertaking.