And if the paneling could be painted...well, that makes a difference! That was the first thing that hit me about the pictures. Sad, I know...but like I said, I had some in the house that was NOT in good shape (buckled and cracked in places), and it took me ages to get it out. So it didn't have happy associations for me. ;-)
But if the whole place could be redone in cheerier colors, it could look pretty nice, I think!
Redoing paneling is not too hard. I mean compared to sheetrocking. not easy certainly. Maybe you can saw it up and haul out smaller pieces.