I just finished drywalling our living room, dining room & kitchen. Ours was also panelled. I put the drywall over the panelling. You should locate the studs prior to hanging the drywall... put a mark on the floor to note their location. You still want the joints and screws to be located at the studs. You will also need to put extensions on each of the electrical boxes and of couse shim out the windows and doors for the trim. It's been about six months since I have painted. What a difference!
the previous owner had painted the panelling in the bedrooms and when I have the time and ambition, I will be drywalling over that panelling as well. Painting the panelling looks so cheap! Good Luck......
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