Years ago when I used them for birdhouses, I finished then with shellac. I have not tried, but some folks use Bowling Alley Wax when using them for decorations. http://web.extension.illinois.edu/state/newsdetail.cfm?NewsID=7924

Don't seal the inside if you want birds - they'd be happier if the inside is au natural. When I used them for birdhouses, they'd only last a season (which is fine). Unless you're going to cut it open, you can't really clean them for additional seasons - the entry hole isn't enough for that. Be sure to drill holes in the bottom for drainage so you don't get drowned birdies if it rains. I never found a paint that didn't peel but I like the natural look so kept to that. Some folks paint them and they don't peel - might depend on climate in addition to the paint used, not info I have. I have some I use inside (on top of a hutch and cabinets as decoration only, Maranka's and bushel) that I used shoe polish on. I'm happy with how they turned out. Here's one.