The frame consists of 1 X 2 lumber notched and interwoven to form a grid which is faced with thin plywood. The layout of these parts is shown in the cutting diagram (figure 1).
It is important that the notches in the struts match each other closely. The simplest way to achieve this is to cut the notches in either all the vertical or all the horizontal struts at the same time. While you might be able to manage this with a saw and a chisel, a router makes for cleaner and more accurate cutting. The steps for this operation are shown in figure 2. Begin by laying out all of the struts on edge, in a group.(horizontal or vertical) Use a framing square to line up the ends, and clamp together with a couple of pipe clamps. Mark one end of the bundled struts with a quick swipe of a pencil or marker. Clamp or temporarily nail a router guide to the struts. This guide is offset from the center line of the notches by half the diameter of the router baseplate, and held square until clamped down. Set the router to take a 3/4" deep cut, and route across the clamped lumber. Repeat this operation for each notch position. Repeat the whole thing again for the notches in the other set of struts. (If you are going to make several of the projects or just want to make cutting the notches simpler, you should build a Router Guide) Drill a pilot hole for the drywall screws in the center of each of the notches in the horizontal struts.
The outer most two vertical struts need to have holes for the t-nuts or threaded inserts drilled at this time. Measure for these carefully, and drill both struts together. A drill press would be useful to make sure these holes were straight. If you are going to make several wall panels, you can build a drilling jig to make the job of matching the holes in all of the panels easier. T-nuts must be inserted from the inside of the panel. It is a good idea to put a little epoxy under the flat head of the t-nut before pounding it into the strut. This will prevent the nut from falling into the inside of the panel. (this is the voice of experience speaking)
Secure the seond sheet with finishing nails. Set all nailhead just below plywood surface. Turn the panel over and repeat this procedure for the other side. Weight the panel down on a flat surface and allow to dry overnight.
The easiest treatment is wallpaper, a material particularly suited to Victorian Period sets.
Fabrics can also be used like wallpaper. The difficulty is finding a fabric and adhesive combination that will not bleed through.
Because of the center joint between the two sheets of plywood, painted finishes are somewhat problematic. I've had good luck painting over heavy vinyl wallpaper. The wallpaper bridges the joint when you take care to offset the edge of the paper. Use a patternless, light-colored, smooth-textured paper. (whatever is on sale, since you are pinting over it) Textured paints will also conceal the center joint. One such paint is Sherwin-William's MultiSpeck. This paint resembles granite and is available in several colors. The only drawback is that it must be sprayed on. (and it's expensive)
Latex wall texturing compound allows the simulation of stuccoed walls. Most hardware and paint stores carry this product, which resembles a heavy-bodied paint with grit mixed into it. The final appearnce of this product depends on what tool is used to apply it. Before laying down a coat of this stuff, I'd reinforces the entire surface of the panel with a layer of the self-adhesive wall reinforcing mesh that is used to repair plaster walls.
The most obvious choice here is to use panelling instead of luan or birch plywood to face the panels. This will work if the panelling is 1/4" thick, and you can find one you like. Most walls-and that is what you are simulating after all-have trim, at least at the bottom. These strips of wood are usually available in 8' length, and need only be finished and lightly glued to the panel. More ambitious would be a wainscote area across the lower third of the panel with a chair rail and wallpaper above.