We recently turned our dressing room into a tiny weekend package, and I too wrestled with the options for the walls. You've got it easy - your walls are in place already but need a bit of a face lift.

I think you have three options. One, buy new paneling and install it directly over the old. This will be more expensive than the other options, and it will take a bit of work because you won't be able to see where the studs are to screw paneling in place. The big advantage of this is - it will look professional when you're done, and you won't have to worry about it falling down.

Your second choice is paint. I seriously considered this option because paint is relatively inexpensive, gives you a huge range in color, and is easy to do. In our case we installed plywood over the insulation, and I decided against paint because I was afraid it would look too rough, I was afraid it wouldn't cover any of the lumps and bumps that come from screws, seams, chips, etc and because i wasn't certain if I would like the look of paint in a trailer. You never see that, so it seemed strange. If I had gone ahead with paint i would have used texture first, that would have helped with covering seams and other marks.

I think your last choice is wallpaper. I did my research on this website, and many people said wall paper worked well for them. I liked the option because it allowed to to have a big variety of colors and patterns, its fairly easy to install (although not nearly as easy as paint) and because it would cover our plywood flaws better than paint. If you decide to wallpaper over your paneling, you need to do some research on how to prepare the walls before papering. If the paneling is shiney or slick at all you'll probably need to sand to get some texture. Then you probably have to apply primer/sizing, which is simply a special type of primer to be used under wallpaper, not the typical primer that you use before you paint. And lastly, I think you'll have to use wallpaper paste/vinyl as well to ensure a good stick. I was afraid to try paste, but it wasn't difficult, and it helped my wallpaper adhere VERY well to the walls. You can use it on normal pre-pasted paper, you simply cut the proper size of paper with a few inches to spare on each side, use a paint brush or rollar to apply the paste, wait a moment or two, and then put on the wall. If you go on the internet you'll find tons of info on wallpaper with paste. We did this for our walls, and for the ceiling we used white textured wallpaper as well. it looks very professional, and hopefully will last a long time.

Good luck with your decisions. If you go onto the search settings on this site you can input something like "painting living quarters" and I suspect you'll find lots of threads on the topic.