I am trying to redo an old room for a nursery and do not have the money for sheetrock.. hoping if i painted the wood paneling wall decals would work okay...

I don't see why not as the stickers will be sticking to paint either way.

Surely installing decals you could liven up a nursery. Bright colors would be advisable. I don't know, however, if they can be applied to any wooden surface. Maybe you could ask one of the companies that supply them and double check before ordering. If you could post some pictures of the room we could give more suggestions. Thanks!