I have an idea to use drywall compound and or texture paint to cover the top 5 feet of my darkly panelled basement. I also have an idea to use a light natural colored wainscott from the floor up to about 3 feet held in place by liquid nails....does this make any sense? Could I do this and will it work? I really need some helpful ideas before I make a mess......thanks!

First, joint compound is useable as a texturing product, so, texture paint is redundant.

The only problem you may have with the joint compound is if the paneling is real wood. The darkness of the wood fibers may bleed through causing dark spots. This is curable with the primer Kilz.

The liquid nails should hold if the paneling is free from any oil residue. You may want to tack some finishing nails here and there just to hold it in place if there are problems after you install the first one.