Someone has told me that wood panelling is passe and should not be considered in new construction. True?

There's paneling and there's paneling....

If you mean 4x8 thin sheets for walls that look like solid wood, you are probably right.

It is becomming increasingly common to find beaded boad wainscot panels in the lower protion of walls though. Solid wood boards are nice in certain locations too. The attachment is in a renovation of a 230 year old house.

Excellence is its own reward!

here is a wainscot detail photo

Excellence is its own reward!