Finishing a basement - to drywall or not?

[Marcus Auerbach]

Living in Wisconsin I try to finish the basements whenever I can to provide additional living space for the our long winter season. Older houses usually come with paneling which I think is the worst solution. A complete drywall finish is the best, but also the most expensive. On the last house I tried a compromise - two sides drywall and on the other two sides we just painted the block wall which was in nice condition. Once the carpet was in it looked very nice, but the appraisal did not come in quite as good as I expected. Does anyone have experience with different solutions (paneling, drywall, block, mix,..) How does an appraiser look at them?