Paint it but IMO the best is to rip it out and replace with drywall.Many times this is not even real wood.

If you can afford to have it ripped out and dry walled that's the way to go. I however painted mine with a good quality oil base paint in a semi gloss and loved how it looked. I used a lot of caulk to close any gaps and patch and sand to fill and nail holes. It took some work, but I think I liked it even better than I would have liked drywall. It was a small study.

The wood wall paneling adds nice texture and character to the space. I would suggest painting it similar to the three attached concept photos. It looks great with a natural colored wood flooring too!

We painted our family room paneling....looked a lot like yours and it lightened everything up and the room looks so pretty and airy. We put a primer coat on and then used semi-loss white paint. A few years later, we painted it a light yellow and I like the lines and texture that it has....ceiling is white.