I would not cover the walls with paneling sheets.

Is most of it patchwork like it is in this corner or is some of it longer and more consistent planks of cypress?

It would be work, but I would probably want to sand it/clean it up a bit and leave it exposed.

The issue is, in a historic house with some formal details (it looks like this room has a cornice), it was probably not meant to be exposed at least in the main rooms. It was probably meant to be covered just as it was, with a liner and paper, and I might be tempted to to that in some rooms as well. So I would probably to a combination of exposure, paint, and paper, depending upon the room.

It's interesting, I have watched a number of restoration programs in UK and they have all sorts of categories of listing historic houses, and in some circumstances you may be required to put the cheesecloth and wallpaper treatment back. It's interesting that they have so much control.

Are you sure it wasn't stretched canvas on the walls? Not a difficult task to replace with the same but it is labor intensive.

Definitely cheese cloth…it is fully deteriorated

I agree I’d sand it and seal it leaving the cypress wood exposed.

What about ALL THE TACKS?

Oh wow. That is a lot of tacks. I don’t know if a belt sanded would work on those or not.

Perhaps the original fabric was muslin?

https://www.oldhouseweb.com/forums/viewtopic.php?t=27762

This is the last thing to worry about. How is the roof? Have you had an engineer look at the piers and assess the soundness of the structure? Has the structure been dried out? It still looks damp from the pictures.

You probably don't want to hear this, but I would consider pulling all of those tacks out, sealing the wood with Kills, and painting. Embrace the paneled look. It will be irregular, but with the tacks gone, it will have that plantation plain look about it.

It's going to be quite a job regardless what you decide.

Hopefully your insurance covers all the repairs.

No insurance on a home this old...we would have to meet electric and fire standards. It will be repaired with family strength. We just are developing a plan and a new roof is in the process.

I'm so sorry Ida destroyed a slate roof, probably the only thing that COULD destroy it. I don't imagine you can replace that much slate these days and still have money left to repair the rest of the house.