I know you are tired of hearing it but you must start out with a clean surface. A good washing using a sponge mop and some TSP or other good degreasing cleaner followed by a rinsing of clean water will save you a lot of grief. Assuming your paneling has gooves that you want to get rid of,we will start by filling them. If you have no grooves or you simply want to paint the paneling leaving the grooves showing then just skip down to the priming section.
Filling the Grooves:You will need a pail of ready mixed joint compound,mud pan and 6" spackle knife, 80 grit sandpaper and a sanding pole will make the sanding a lot easier.
Fill the mud pan appx 1/2 full and load the knife edge with a 1" ribbon size bead of the "mud". Now line up the knife parallel with the groove, cock it just a bit towards you so that it is on a slight angle and slide it down the groove. You should end up with and area appx 2' long and about 2" wide with mud over the grooved area. Take the clean knife and place it on the mudded area at the top so that the wide part is at a right angle to the groove and drag it down removing all the excess.
This is much faster than dabbing the mud over the joint in all directions and then removing the excess. Its a lot easier then it sounds here. you'll get the hang of it once you start.
Allow this to dry and sand with your 80 grit sandpaper. Apply another coat and again sand when dry. Two applications are normally enough but if your grooves are still indented you may have to apply one more coat.
Priming: Priming is a must regardless of whether you are going to paint or paper. The stains in the paneling will bleed thru youtr top coat of paint And I have had it bleed thru wallpaper too.
I use and highly recommend Zinsser 1-2-3 latex primer for just about everything. We have painted about every surface you can imagine, glass, formica, chrome, ceramic tile, and never had a failure. Its water base so it cleans up easily, reasonably priced at $16-$18 per gallon and it covers appx 450-500 sq feet per gallon.
A good oil base primer is kilz. Oil base primer should always be used if the surface is going to be exposed to water such as bathroom tile. Kilz also has terrific adhesion, provides a good surface to wallpaper or paint over and its a little cheaper. Normally you can find it a Home Depot or Lowes for about $10- $12 per gallon. It is an oil base so you will need to cleanup with paint thinner or mineral spirits.
Once your priming is complete you can simply apply your finish paint, a nice satin or eggshell enamel looks good on painted paneling.
If you are going to wallpaper you might want to consider applying a wallpaper liner first.
