Unless your paneling is glued directly over the block,(which i never heard of and is a bad idea), the paneling is nailed to furring strips attached to the block. You might want to consider removing the paneling and having foam panels installed between the furring strips, as the furring strips will probably be adequate for hanging your drywall on.You will want to look into whether you'll need a vapor barrier between the foamboard and drywall as well.Another advantage to removing the paneling is that it will allow you to see if you have any moisture concerns behind the paneling,(mold, rotting of the furring strips,etc).I've never heard of paneling being an insulator, the r- value would be very miniscule, almost non existent.

Before this basement forum was here, there have been several posts the short time i have been reading these forums about code issues when finishing off a basement.I dont want to lead you astray with the above advise, as my suggestion might be a violation.You should run this by your local bldg. dept for what is the happening way to finish your basement.Simply applying drywall over the existing paneling might be a violation, as well.The posts i read concerning this topic generally involved an air space between the finished wall and the foundation. Some air spaces were as little as 1/2", with others as much as an 1-1/2". The codes obviously differ in different parts of the country. You might have to go to the expense of having a framed wall held out from your foundation. This would be a typical framing involving a pressure treated sill plate, studding 16"o.c, and either one or two upper plates depending on your codes.The advantage to this is you would get a signifigant more r-value in your walls compared to foam board or the paneling(?).The disadvantage is you lose a little sq. footage of floor space, though i doubt you would really miss that.There are also drainage concerns if you are in a wet climate area, as well as proper vapor barrier installation if required in your area. I would go down and ask all of these as questions to your local bldg. dept.If you go ahead with what you currently have planned, might give you some problems as far as moisture is concerned and could come back to bite you if you go to sell if it's a code violation.