To answer your questions, I would need a bit more info. For example (1) is the paneling really wood paneling ---there is still some paper faced (fake wood paper vaneer) that would be hell to attempt to skim. However, you did say there were grooves in the paneling, so, there is a 95% chance that paneling is wood. (2) What is paneling covering?--- if it's covering lath & plaster, I would be temped to pull off one panel to see what's behind---it might be easier to work with what is under paneling. ---- If paneling has been applied directly to the 2X4 wall framing (which I very much doubt), I would pull off paneling and drywall. (3) how large is the area that we are talking about? If it's just one 12 X 12 room---and the paneling is securly anchord to whatever is under it; then, I would try your method. If you skim coat, you very well might find that there will be some rust colored stains bleeding through the skim coat after it dries--- you'll need to cover those stains with something like "Kilz" (sp?) ask for "kilz" at hardware store --they'll have paint-on or spray-on types--- if there are not hundreds of stains I would use the spray-on---just to hit the stains. (you'll need to cover stuff---the spray can leave a white dust-like cover.
If it were me, and the paneling was well applied to underwall,--- I would paint over the paneling and the heck with the grooves. After you put up your valuable artwork the walls will fade into the background. Try it, you can always skim coat (that is, if you enjoy work, mess, time, and pain). Good luck. Jaes.