Choices, choices.
One can "mud" over paneling. It is tedious, requires lots of palster and in many instances one has to sand the paneling to remove the glossy surface so the plaster will stick and not crack.
One can remove paneling - but then you can discover either layers of wall paper, or lots of cracks or in some cases that there is no plaster & lathe/drywall beneath.
One can play up the paneling with faux painting techniques - some times one gets a good look some times not.
Paper 'Plique:
One can use craft paper (Comes in rolls, usually brown, now days in assorted colors) Rip up and ball up the paper, hand smooth, using drywall paste (latex, water based) stick these uneven pieces to the wall allowing the wrinkles to remain. You get a texture (wrinkles and lines, plus the uneven ripped edges of the paper. It worked rather well at hiding a lot of wall flaws in our trailer (Yep I live in a trailer). When we first applied it we used grey craft paper which had slight differences between the color on the front and the color on the back. The over all effect went rather well with green floors and white ceiling and multicolored furniture. After a few years we painted it a gloss bright white. We lost the contrasting shades of grey, but we still hade the wrinkled paper effect.
Here is an example of that:
http://www.hesterdecorating.com/portfolio_interior25.htmI have seen this technique used with patterned and textured wallpapers to get different effects. I have seen this also used with tissue papers which are thin enough to allow the color of the wall show forth.
Here are some examples:
http://www.usmurals.com/faux-leather.htmlColorI could spend hours talking on the subject, but with out seeing the carpet color I can not give you a spot on wall color. But there are some sites that can let you paint a virtual room, combine colors, try on different flavors.
http://www.sherwin-williams.com/pro/ Middle of the page is a hyper link to Color Visualizer. Click on that and you can virtually color a room and its various components.
http://www.glidden.com/visualizer/visualizer.html?imagecode=usbedroom_015Is another one, this one I was allowed to paint the floor to get a red base, then paint various components of the room to check out different colors.