Hey zbeth -- I had paneling in almost every room. I painted a couple rooms selectively. In others ... I ripped in out. It is a pain both ways -- ripping it was worse as I was left with damaged drywall as it was nailed and glued -- I skim coated and worked thru it. I did get estimates to drywall over it but was concerned about the odor (old) and flatness.

Basically, my two cents ... I would leave it in one room and paint it (Family Room which I am guessing is bigger) ... and rip it out in Dining Room for more openness and formality?

I agree with Pines. Depending on your budget, or if you are DIY. When we first moved into our home, we had paneling in two lower level rooms. (TV room and office) We painted them white which was a good fix until we had the chance to properly renovate and remove.

Have any pics, Pines? It might help the decision making. I had very dark (2x the "dark" you show zbeth) in a basement applied as wainscoting. Mine was thick and ROUGH. We did not want to deal with the fix of destroyed walls so we painted. I LOVE IT. I like the texture that remained. It was a challenge to paint all the nooks and crannies but well worth the effort.

Here is mine sort of before and after from old Christmas pictures:

Just some help with pix for painting paneling -- Before pix on top.

Remove.

I'm with Annie unless it IS a basement rec room.

I would remove. Maybe you'll get lucky and it won't be glued on. The paneling I had in my LR that I removed, was just nailed on.

We removed it in the LR (converted to a dining room) and painted. We left the wainscoting paneling in the small hall and (then) dining area of eat in kitchen. Our paneling was very dark stained ash. Walnut with extra black added to it and very smooth surface.

We removed it. The first wall was in the entry:

When we removed the paneling (and this fireplace), we found just wall studs underneath:

We had the drywall guys in to close up the ceiling, drywall the walls, and texture all. [Our good buddies the drywall guys also skim coated both the entry hall wall and the DR wall over the bottom layer of wall paper which was never coming off, and textured those too.]

The second paneled wall was in the family room:

We're guessing that the builder didn't originally plan to panel this wall because we found drywall underneath. Note the hammer holes every 16" as they tried to re-locate each-and-every-stud. Honestly, they didn't have a measuring tape?

We had the drywall guys in again to patch the return air hole (we relocated the HVAC), patch the hammer holes, and texture. We're currently working on getting the crown molding in.

We did the demo on both walls of paneling, but hired out the drywall part. Removing paneling vs painting it gives a more finished product at the end, but is also more expensive unless you DIY all of it. I'm pretty good at basic drywall repair, but putting up a wall from scratch and texturing are out of my comfort zone. All things considered, this may be an economic decision for you.

Painting is the easiest way. We owned a rental home with the dark 1970's style paneling, it was dark and awful. When we were getting ready to sell it, I told my husband to paint it white or off white. He didn't think painting paneling was a good idea, so he listed it as is. There was not much interest, so the realtor suggested he paint the paneling. He did that, and we got a lot more interest, that paint brightened up the room so much. It sold soon after. Paint gives you the biggest bang for your buck and is a low cost DIY project.