How does wood paneling compare to drywall?
The cost of prefinished wall paneling can vary wildly. Cheap 3/16 inch fake wood or patterned panels can cost around $10 per panel. A decent real wood veneer can soar to $40 each. 

It is common practice to put paneling over drywall. Two main reasons for that are fire rating and ability to spread adhesive evenly so panels don't bulge between studs. There is no real R-value advantage. If anything, if paneling is not installed over drywall, the seams can be a source of air infiltration, negating any insulation value.

As a comparison, my drywall subcontractor charges me an average of $45 per sheet for 12 X 4 foot 1/2 inch rock, hung, taped, mudded, and sanded paint ready. This is really competitive with  decent quality paneling, especially if you figure in a drywall untaped backer. If you do decide to go with prefinished panels, be sure you really like it, because you're gonna be looking at it for a long time! LOL