It can go either way!

In the photo above the wall color is a combed effect faux finish. The chair rail is the divide, but is the only piece painted to match the trim. If you use wainscot, or a panel moulding attached to the drywall below the chair rail and paint the entire lower section in trim paint it make a bit more sense. I do think you should avoid three paint colors in the room.

Thanks Ironwood Builders! Originally I was going to paint white 46" down & leave the paneling as is on the bottom, separating with the rail. But..my mind being what it is, I forgot & have already painted the wall around the doorways leading to the living room and hallway and also the wall around the dining room closet..from top to bottom! It's tough getting old! Also, the trim around the doorways and the closet door are brown. Should I leave them as such or paint over them in the room color? One area I will not be painting is the built -in dinnerware/liquor cabinet which is glass fronted on top & sliding 'wooden' doors on bottom. I feel that area should stand out. So, you're suggesting I leave the crown moulding & ceiling white, choose one color for all of the walls and then a white chair rail? I will attempt to upload a few pics. I truly thank you for your input.