My house is sided with painted 4x8 plywood panels which are vertically grooved at 4" intervals. The paint within these grooves is badly cracked and needs to be seriously scraped and cleaned before repainting. I have two ideas. The first to find a router bit of the size of the grooves - about 3/8 inches and the clean them that way. The second is to nail 1x2 or 1x3 boards over the grooves creating a board and batten look. Any ideas! Thank you.

The board and batten look is kind of neat. You would have to glue them on as well as using fasteners. I would shy away from the router idea myself. There is not much wood thickness at the grooves and it would be very easy to get off so to speak. A router would chew away very easily at the edges and could make the now straight grooves look crooked. If you wanted to clean out the grooves I would suggest either a wire wheel or a paint remover you can attach to a drill. A 4" brass wheel in a drill would more than likely be your best bet. The paint removers and regular steel wire wheels can be fairly harsh on wood. The brass wheel is a little softer and would conform to the groove much better while doing less damage to the wood on either side of the groove.
Mike