Many paint the paneling. See these photos http://www.houzz.com/photos/living/painted-paneling-

We painted the paneling in our living; basically because we were uncertain of what was underneath. We were told to use 3 coats of primer and 2 coats of paint and to not skimp on that. The paint held well. Several years later my husband (because he hates paneling) filled in all of the grooves and I textured the walls. Now it just looks like textured sheetrock. If you decide to do that in the future, make sure what you use to fill the grooves is compatible to the texture. We had a terrible time with the texture bubbling. It took me forever to knock down the bubbles and get it right.