You can install the vinyl siding over the shake if (and this is a big if,) the butt (bottom) of the shake is no thicker than 1/2". If the butt of the shake is larger it needs to come off. If you go over the shake you will need to use a flat 1/2" to 3/4" polystyrene backer board. However when doing this you will need to build out all you windows, doors and fascias. By ripping the shake off, you should be able to away without doing the build out. Ripping off the shake will provide a much flatter and better looking job if installed properly. You should never install vinyl siding over existing wood shakes directly. It voids the manufactures warranty and it is almost always looks bumpy.
Last edited by valueremodeling; 10-26-2010 at 08:53 AM.