I have a house built in the 20's with wood horizontal siding. The house was taken to the bare wood, sanded and caulked before repainting. The siding seems to be splitting inspite of caulking before painting. Can this error be corrected by using a different type of caulking?

I don't understand what you mean by "caulked". Normally, siding is not caulked, except at doors and windows. Siding admits water, and if you caulked all the horizontal joints, you've left no way fro the water to get back out. Possibly that's the cause of the splitting you observe. The felt that is normally behind the siding (or nowadays house wrap) acts as a secondary water barrier (as opposed to a moisture barrier) and is supposed to direct water that enters through the siding to flashing and weep holes, where the water can escape. In the case of horizontal siding, each horizontal joint is an escape path. If they are caulked, water pressure will build behind the siding, and there is nothing on this earth as destructive as water when it wants to be.