Bad boards, bad boards!
Whatcha gonna do, whatcha gonna do
When they collapse under you?!
Do I replace them or just cut them right where the damage starts and replace that portion?
I would be okay with some paneling, but I feel that it is excessive. How about leaving the bottom 3-4" with molding? Does that work?
I saw one house with painted paneling. Is that tacky or acceptable?
Moving the washer and dryer into the bathroom is an interesting idea and freeing up space for an oven would be a huge benefit!