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I have seen it done with mud but I don't think I would do it.I wouldn't trust it.How much paneling do you have? Have you thought about covering it with drywall?
 

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I've done it several times over the years with mixed results. Epson is right, most of the time it's more trouble than it's worth. You fill the cracks, let dry, fill again until you get it flush. Then you have to sand and throw dust everywhere. It's a big process and in the end you still have paneling. I actually like leaving the lines. After painting, they blend in and aren't quite as noticeable. Follow JSheridan's process if you really want to fill them in. Another old trick which I don't recommend is covering the gaps with masking tape.
 
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