If the surface is bubbled and peeled, I don't think you are going to get good adhesion or an attractive look by adding wallpaper on top. I don't know much about painting and prep, but I am thinking that you might sand down the paint and put on a primer, then wallpaper if you don't want to paint.

About 15 years ago I lived in an apartment carved out of a mid-19th-century farmhouse with the original ~1910-ish kitchen (ohhh, that enormous double-drainboard sink on legs *sigh*), and the cabinets were all lined inside with a rather charming 1950s "kitchen-y" wallpaper with teacups and cake slices. You wouldn't need to scrape all the way down to bare wood, but you'd need to scrape off all the peeling and bubbled paint, sand (at least) the edges of the scraped areas to avoid "telegraphing" the damage, and use a high-adhesion paste like a vinyl-to-vinyl paste that's made to hold to a slickish surface. It WILL look better if you match up the pattern, on the vertical surfaces at the minimum - if you can remove the shelves it'll be infinitely easier, and then you can do the shelves before reinstalling them.

If it were me and I were doing that, I would sand the paint as best possible. Then I would try using a wallpaper liner which is just plain white wallpaper and which is a better application for this project, OR I would use anaglypta which allows for imperfections in walls, etc., plus you can paint anglypta many, many times over.

I have anglypta that I used in my kitchen area (but not breakfast area) which are adjacent but separated by architectural design so that I did not have to have the total continuity. I decided to do a backsplash of tile which meant I had anaglypta just "there," there doing nothing. I painted it the same color as the rest of the kitchen. People who notice it say, "hey, that faux painting stuff looks good, why don't you finish the rest of the room in that?" Well, maybe one day I will but now I am tired and no longer hang paper secondary to health issues but I have a closet full of the cheap stuff which can be made to look very elegant by painting and dry brushing with a color, wood glaze or a metallic glaze. I think mine has been painted 7 times since I put it up 13 years ago.

If you saw the inside of my cabinets and how much work I need to do yet, you would forget about the wallpaper.

How old is your home?

I had oil based paint inside my cabinets and then painted them, it did what yours are doing. I decided to put contact paper over it. Fast forward several years, it looks horrible! I did redo one cabinet by taking the contact paper off, scraping loose paint and washing with dirtex. I then used zinsser BIN so I would not have the same problem with latex over oil. I used BM paint over that. It takes several weeks to cure. I have many more to do but the hard work is worth it!!

Barb

Please let me add, there is a huge difference in contact paper and wallpaper, particularly in the inability of contact paper to adhere in areas where moisture and temperatures are likely to contract frequently.

I guess what I was trying to say is that latex can be painted over oil when done right

Hope this helps!!

Barb