I'm no expert in the area of sheetrock, but here are my suggestions...
For #1, is there sheetrock behind the paneling? If so, I'd tear off both the paneling and sheetrock and replace with 1/2" or 5/8" rock (and insulate the wall if desired). I don't normally like to put new over old, but the previous owners of our home put wood paneling over 1/2" rock over 1/2" plaster...
I wouldn't know what to do on the ceiling.