You can put any kind of finish on the wood. The problem with tongue-and-groove pine is that moisture will always seep through and enter the drywall behind. The first thing to do is cover the drywall with either an oil-based paint or a vapor barrier primer. If any moisture seeps through the pine, it will not be able to penetrate the drywall. However, if the moisture seeping through the pine is stopped at the waterproof drywall, it will penetrate the back side of the pine. To prevent that from happening, cover the side of the pine that will face the drywall with a water sealer. The easiest way to do this is to cover all sides with the sealer at the same time before installing the pieces. Once the waterproofing is completed, any finish can be applied on the exposed pine.