You need to use a different type of plaster called Marmormino which has lime in the plaster. The lime keeps the plaster from molding. Using anything else will give you a surface prone to mold (and mold easily). I'd do a quartz primer first to have the best results and then use a commercial wax on the finished product. You really do need the lime based plaster though. In a highly wet area it's a MUST!

Look online for marmorino...you'll see it's pretty readily available. Applying this is a lot of work, but will look nice (and if you use the quartz primer you should be ok with the existing wallboard). It would really suck to do all of the work necessary for a good plaster finish and then have it turn into a peetrie dish :(

You need to take the shiny junk (sounds like masonite tileboard - plasticky stuff on a thin brownish-black backing, thicker than formica?) off and replace it. You probably won't like hearing this but just glopping some joint compound over top of a crappy substrate - even if it does stick, which I'm quite dubious about - doesn't really make you any better than the PO where cutting corners is concerned! There are lots of places where you can cut costs to permit you to actually do the job correctly. Substitute inexpensive light fixtures and accessories like towel bars/tp holder/cabinet knobs/etc. (which are all easy-peasy to replace later when you're flush again), do the demolition work, take care of cleaning the jobsite every day, power-shop for bargains like there's no tomorrow, and that's just a start. Yeah, drywall is DIYable, but there is a distinct learning curve; my current house, a rehab/flip, is an excellent example of an apparently-first-time DIYer doing drywall (probably out of a book and maybe a video) and clearly getting impatient with the fiddliness of it all. It looks like absolute s***, and all has to be redone. Unless you have lots of time and even more patience, drywalling is a good place to spend some of your remodeling dollars. A handyman with good sheetrocking skills (get references and look at his/her past work!) may well be cheaper than an actual drywaller, especially for a small job.

The other option I can suggest if you really want to bag out on drywalling properly, but which may not necessarily be any more cost-effective, is beadboard panelling (the plywood or MDF type, painted thoroughly). Some products can be installed right over the studs. Depending on your architecture and decor, it can look quite charming to simply run it floor to ceiling.

I would replace the walls with drywall. Going over it will look like a cheap fix.

Thanks for all the advice, I am not going to plaster in there, I was not sure about mold, that is why I asked you...I do not want to skimp on anything, I just wanted to see if it would work, I was pretty sure of the answer before I asked, but you know. Thanks again!!!