Unless you're putting tile or stone on the walls (backsplash, for example), I think you can just use sheet rock. But, you will need to have the studs, etc. to hang cabinets. This is not my area of expertise, so I'll leave this to others.

However, I suggest you think about a layout before you get too far down the road. You don't want to be stuck with a poor layout b/c of decisions made & work done w/o the Kitchen planned out.

First, read the "Read Me" thread & then take the "Sweeby Test" (linked in the "Read Me" thread). The thread gives a kind of summary of what to do...no, not the detailed steps of the whole process, but a general idea of how to at least get started. The test will help you define & refine what you want from your kitchen...it works for other rooms as well, btw.

Some questions to ask yourself...

Is this the best use of the room...will it work as a kitchen?

Are you OK with the kitchen being the first thing someone sees when they come in the front door?

If you do make it into the kitchen, do you want to leave the FP in the kitchen (kind of cool, I think...if it doesn't get in the way)?

Here is a link that might be useful: Read Me If You're New To GW Kitchens!

buehl is right about the studs... it's best to install blocking (usually a 2 x 6) between the studs on the wall you're going to hang uppers on. This makes it easy to attach them, however, it entails cutting out that area of drywall (I recommend a Fein Tool!) and then re-drywalling over it, although since its behind cabinets you don't have to finish it completely as for a visible wall. if you decide not to do this, your installers will have to find and locate the studs and have a limited choice of where to put the screws, not an ideal situation.

Drywall-wise, you don't need to do anything. As far as I have been told -and we did this in our last house with no issues- tile backsplash can go right on regular drywall for a kitchen (not a bath though.)

I'd also recommend taking beuhl's advice and hammering out your layout before you start. It'll be a PITA to move the plumbing and electrical again if you change your mind once you start looking at exact placement of things!!

We also moved out kitchen into the LR/DR area, so have just been through this. Once we started fine-tuning the layout, things changed a LOT!

Depending on the house age and location, pulling the sheetrock from the outside walls will allow up-insulating them. Pulling sheetrock from interior walls might only have merit if wiring or plumbing were sufficiently aided by the effort that the sheetrock cost was compensated.