I'm in the process of updating a victorian home built in 1890. The walls currently have nothing on them and are a beautiful golden wood which was at one time covered with probably cheese cloth wall paper. All of the trim is wood and never painted. The wood gives the house more of a log cabin feeling than a fancy victorian. However, it is very dark in the house and somebody put drywall in some of the exterior walls between the boards, I assume to keep the wind from blowing through. Also there are a million tiny nails in the wood. What is the best thing to do to the walls? Try to pull the nails out and seal the wood with something (if so what?) and leave the interior of the house with a log cabin look? Put up sheet rock which might crack with the shifting Texas dirt? Put up paneling? Old fashion type wall paper (if they still make it)? Other?

What's the easiest way to finish drywall joints? Sponging, as recommended by the compound companies or sanding? I like the idea of reduced dust with sponging but have never tried it. It is more laborious than sanding? Does sponging provide an equally fine finish?