Replacing basement paneling

This is what I inherited from previous owner: fully finished basement with suspended ceiling and full paneling. However, I suspect all this was done as an afterthought by a handyman, with no real thought to insulation along the outer walls; therefore, it's cold down there.
Instead of ripping off and replacing the entire ceiling and all the paneling - paneling extends about 5-6" above the ceiling grid - is it do-able to take off only the grid runner and paneling along the outer walls, insulate and replace the paneling? Must I install sheetrock beneath the paneling?
Also, should I decide to replace all the paneling (I can live with it, but it's not something I would have chosen), is it advisable and do-able to place new paneling over the old? How would I go about doing this? And how would I deal with electric outlets that would then be recessed deeper from the surface of the new paneling?
Thanks in advance for any and all advice
Sid Waine
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Hey, I would worry about the floor first. The floor contributes much to a thermocline (sp?) effect where the lower layer of room is very cold. Anything helps, a cheap pad and carpet will really changes a basement. Anything but a dense, hard material to convey the cold.
Tim S.

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You might want to treat the floor with a quality Enamal-Based Moisture Barrier type paint before installing padding and carpet tho, making sure it can stand up to heavy treatment. Some companies make pretty good products for this, as basement floors will wick moisture up into the carpet making it musty, wet, and ruining the carpet prematurely.
Also you could try the "shadetree approach" and just match the paneling with a brand of caulk and seal up any type of draft, if at all possible. Just a suggestion, in my experience most types of sheet paneling just don't remove easily and undamaged.
-c.

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