What kind of insect nest is this?

Could be termites... is the wood in the area soft and spongy feeling? Any holes behind where the "nest" was? Did the nest feel like sawdust or crumbly paper? If it is termites, you might have a serious structural problem in your home. I would consider calling professional help to find out for sure if there is any evidence at all that they came through the paneling/wood. Call an exterminator.