I used foam insulation from Home Depot mounted on luan and covered with batting and then warm and white. I have two areas - one is 4' x 6' and one is 2' x 4'. I used to have felt stapled to the wall when I had a paneled wall, but I recently had my sewing room remodeled and didn't want pins or staples in my drywall!
larger design wall
[ATTACH=CONFIG]119501[/ATTACH]
smaller design wall
[ATTACH=CONFIG]119502[/ATTACH]