Hey Tom - I've just gone through a renovation and did research some of this stuff, though I did not end up putting my listening room in the basement as I thought I might. Anyway, the best approach if you have a ceiling that low, and this is a second-hand suggestion from an authority on such things so take it with the usual grain of salt you may with any advice you receive here, is to leave the joist bays open and do not use any drywall or panel covering. Stuff the bays with the (uncovered) insulation of your choice. There is a more expensive, very dense almost wool-like insulation that we used upstairs in our home that is the best solid insulation for sound dampening (better still is blown-in but that may not be a good idea if you are leaving it uncovered). So you leave the insulation exposed and hang some kind of fabric beneath it to cover the ceiling and keep it sealed up. The combination fabric and insulation will be much better at deadening that low reflective surface than just hanging fabric over hard drywall. If you must do drywall I'd consider blown-in insulation and a more agressive acoustic treatment attached to the ceiling such as those sold by RPG.
Marco
Marco