Clean the wall paneling thoroughly. Use a damp rag to brush away any dirt, grime or cobwebs on the wall. Let the wall dry completely.
Put drop cloths down underneath the wall. Tape them to the baseboards with masking tape to keep them from shifting around underfoot.
Fill in the grooves between the panels with joint compound. Use pre-mixed compound for an easier fix. Scrape a small amount of compound onto the wall with the drywall knife. Do not over-apply or you will be left with a mess. Aim for a coating that just fills in the grooves and does not go beyond this. Scrape off the excess with the edge of your drywall knife. Let the compound set for at least four hours, or until hard to the touch.
Sand down the joint compound with a fine-grit sanding block. Go back over all of the grooves and the paneling on either side. Sand the surface until it is smooth to the touch.
Prime the wall with a latex primer. Roll one coat of primer onto the wall. Cut in around the edges with a brush. Let the primer dry for four hours, and then examine the wall. If you still see wood grain underneath the primer, add another coat. Once this is dry, you can finish the wall with paint or wallpaper.