I made about as many mistakes with a similar project as one could make. I didn't sand or apply any primer. I taped the seams with masking tape. I used a latex paint.

The result was that in a short time there were dark "bleed-throughs" here and there on nearly every panel. I had to apply two coats of Kilz to stop the bleed-throughs as well as to seal the rest of the walls. It wasn't until two or three years later that I began to see the folly of having used masking tape on the seams. The tape's glue eventually failed and the tape shrank away from the wall, creating very noticable cracks.

What did I do right? I used textured paint and a stippling roller. The texture did wonders in hiding the panels. Most folks who visited my home never noticed any of the cracks or indentations unless I mentioned them.

Was I proud of the end result? Yes, for the most part. The best thing was that the light color brightened the dungeonous room wonderfully. However, in my mind's eye, I could always see the old paneling beneath.

Would I do it again (even if I were to do it correctly?) No. Bert had the right idea: cover the panels with 1/4 inch sheet rock.