I have been on a 3 month quest for a sollution to faux-70's paneling= "Wall Liner"! Hung like wallpaper (4 u hang this 1st- then ur wallpp).
From what I read it works and was designed for this purpose ages ago. Will post again in 1 month when I've tried it.
If you have concret blocks and like a stucco look, may I suggest removing the paneling and using Berh Textured paint. I was leaning in that direction myself (I didn't want to waste landfill space) Good luck!