os-rot contains two questions.  One was a duplicate (of a question that didn't need the tag).  The other asked, "What is OS rot?" in response to the duplicate.  It appears to be unnecessary and not understood.


Question: How is a transition between drywall and wood typically handled?
Answer: Here's a few options I can think of.

Lap joint

If the wood is a bit thicker than the drywall, you could use a router to remove some of the material on the back side of the lowest plank (may require installing an additional plank, or extending the drywall). Then allow the lowest plank to lap over the drywall. Make sure you leave enough of a gap between the two materials, to allow for expansion and contraction.



Transition

Another option would be to use a transition strip, like the ones commonly used in flooring. You'd use T-molding if the materials are even with each other, or a reducer if they're not.



Molding

A simple 1x4 like the previous owners had, or a more decorative piece of molding could be used.