Dry wall or panelling, suggestions ?

If you are looking for cost effective ways you could nail it then prime it and paint it. But you might want to find out why it’s buldging. Drywall is a lot of work and messy. It would also look good though. Depends on your budget really.

If it was me (my funds are limited) I would renail and then paint it. That is of course if it is in good condition to start with. Just fill in any holes or grooves before painting so you get a nice smooth finish.

find out why it's bulging ... you might have moisture seeping in behind it ... find/fix the problem before you do anything ...

I believe that the glue has lost it's adhesive! The nails are still there, but are no longer nailed in. I will try the glue and nail technique first, and if all else fails, try the drywall. Thanks everyone for your input

I agree about finding the source of the bulging, though it could just be loose. Then I'd spring for the dry wall. It will have a nice clean look!

Thanks CPJ!