GreenDesigns, thanks for your input. I am not plastering, just skim coating a thin joint compound over the entire drywall surface to even out the contrasting textures between the dry wall paper and the smoother areas of joint compound at the seams and at the screw sites. Maybe "skim coat" is the wrong term, or used loosely in this application. I have read multiple opinions on the use of moisture resistant wall boards. Opinions are very divided. I was miss leading in my OP in that this is a moist room, as this room has never gotten steamy in the 22 years we've lived here and there was no fan. There is no shower, just a tub. But, because this is a bathroom I can assume there is more moister than, say, the living room. What I have read regarding regular drywall is that if it is used in the non wet areas of the bathroom it really is more important to have a proper primer and paint installation to protect the wall system. When my kitchen was done last year the drywallers did skim coat my walls, I just wasn't there to see how they did it. I have watched the USG video and it is straight forward enough. I have attached a link below. Lastly, to provide some context, this room is not our main bath, that is why there is no shower. This bathroom is next to my kitchen. The bathroom is really a combo utility room/bathroom for our farm house. Here is a link that might be useful: US Gypsum video on level 5 finish.

We're in the NYC metro area and I'm sure the prices we were quoted reflect that, so suffice it to say that your preference order matches the cost from most to least expensive. As a side note, #2 came from a website, not personally recommended by a trusted friend, and also told me over the phone that he'd do it for less than 1/2 the quoted cost if we did it off the books. Given that I had just met him, I wasn't too keen on the idea of doing anything w/out a written contract, so we kind of crossed him off of our list. What was it about his proposal that you liked - skipping the mesh, removal of the damaged plaster? And if the mesh is not necessary in this scenario, when is it? I thought the purpose of it was to help prevent old cracks from reappearing. This post was edited by aliciaandbilly on Wed, May 29, 13 at 11:10

You are in over your head with that want list. Hire a pro. What you are describing wanting done isn't gonna be DIY friendly. Plus dealing with lead? And you need to change your expectations about an old home's character lines and wrinkles or you'll go broke and drive yourself crazy

In my area the houses built in the 40's and 50's used lots of cement board rather than plaster and lath. The cement board was nailed up in 2' x 4'sheets and then plastered over. It seldom pulled loose. I think you have to determine what you have. You mentioned that it looks like peeling paint was painted over. If that is the case, you might want to have someone scrape it down really well and then put a skim coat on it. As Eric mentions, if it's plaster and lath, the plaster might have pulled away. The plaster that I've seen over lath was normally around 3/8" thick. We nail patches of 3/8' drywall over the lath in the bad areas and blend it into the plaster with joint compound or some other substance.