For those interested in wooden acoustic theory (courtesy of RPG Diffusors):
"Wood is generally accepted as a desirable surface treatment in general architectural spaces, as well as critical listening and performance spaces. However, one of the problems is that flat wooden panels may generate problematic reflections compromising the intelligibility and music quality.
Wood paneling provides a handsome visual architectural appearance, however, flat panels can potentially generate strong specular reflections and excessive reverberation that may corrupt intelligibility and sound quality."
So, in general, while a few wood panels may contribute to better sound - tossing it up everywhere creates an environment that's more prone to echoes than a pleasant listening environment.
Here are some ideas to help dampen the reverberations:
1) Toss some Marimekko fabrics onto the wall to soften up the echoes.
2) Add some felt - room/space dividers can also absorb sound.
3) Green glue some custom sheet rock to your walls.
4) Drill a bunch of holes into your walls (seriously).
5) Or, if carpet is your thing, throwing some up over the wooden paneling should help reduce the echo-factor as well!
Have a good sound dampening technique for wood panels? Let us know in the comments!