Hello Emmarene, thanks for answering. The rest of the house has wood floors, sandy-light color. I'll try and upload a photo of the hallway later, it's an oblong room, on one end there's the door to the garage, on the other end there's the door to the patio. Large windows on one side, though altogether it's quite a dark room. Also it's the only way of getting to the back garden, so I need to take the trash cans and lawn mower through there... definitely need a robust floor.

Thanks so much for the comments everyone. I love the house and want to do the right thing by it. The panelling actually will be staying for a while because I'm renting the place out until my current house is sold. My immediate 'must do' jobs (aside from some essential structural repairs) will be to paint the ceiling beams, replace the carpets (I will probably polish the floors later down the track because of the red dirt issue) and get rid of those curtains. The room in the photo is the living room, and there is an almost identical space next to it which is classified as the entrance/foyer. A stairway leads from the foyer up to a massive attic bedroom. All of these rooms are lined with the rosewood. The second bedroom and bathroom are later additions, so not lined. The cream paint you can see is in the kitchen (and they did an awful job of it) but it's not the same panelling as the rest. I'm going to have the kitchen lined when I eventually replace it, so I'm not too worried about that. Other jobs will be to rip out the busy metal security bars that detract from (and darken) the lovely old widows and to repaint the glosswork (currently purple in the living room and bright blue in the kitchen). To those who asked, yes, the panelling is original (so around 120 years old) and it is solid rosewood so it does have heritage value - hence my turmoil. The cottage was built in the Federation period but with a very strong English influence. This was common on Tamborine at the time because wealthy English ex-pats liked the climate up there (generally about 5 degrees cooler than Brisbane in summer with significantly colder winters) The cottage was built by a member of the local 'gentry' as a home for her ladies maid and chauffeur (a married couple). The original big house is next door and has been beautifully restored. If I did paint I was thinking i'd have the job done by a professional with the view to preparing it so it could be stripped back if someone was insane enough to want to take on the job in the future (thanks for the shellac tip, Current Resident) but I think I might err on the side of caution and leave the panelling for 6 months or so before I decide. As some people have said, there are plenty of design tricks I can use to lighten the space and 6 months should give me enough time to know if they'll be enough or not. Thanks again! Your comments and suggestions have really helped. I'll post some before and afters when I've made the changes.

I like the kitchen cabinetry as it is but would change the knobs to a dark metal or oil rubbed bronze. I would paint the kitchen walls an off white to lighten and brighten. Be sure good lighting such as under cabinet lights and alot of overhead lighting to accenuate the wood and stone materials. I am not a fan of painting over natural materials. I would consider putting a large piece of artwork that has lighter colors in it to lighten the stone wall or a large mirror but just one large piece or 2 pieces at the most on the stone wall.Thanks for the additional photos. I can tell there is alot of interior charm and character. Best wishes!

Hang lighter colored artwork on the paneled wall with command strips.