my dad had painted paneling that he did in his living room., I thought it looked real nice. He had filled in the lines in the paneling with spackel, I would try using drywall mud, it's easier to work with. That way you get a smooth surface which you could also walpaper, which he did in another room. That also looked real nice and certainly brightened things up. You may want to consider using a primer first. All this of course will make the job longer, but in the long run, time against looks just isn't comparable. All depends on how nice you want the end result to be. Good luck and let us know what you did and how it turned out.

For a basement storage room I would apply the trim to cover the seam as you are planning and paint with an eggshell or satin paint. I would not worry a bit about filling all the paneling indentations. You want clean and fresh and painted paneling will get you there.