You don't need to prime, but the nail holes might flash if you don't double coat them. You can use a primer for this or you can use the low lustre topcoat.

Whoops, I stand corrected about dark on bottom! I was just reading old posts by Magnaverde who offered this on the subject of wainscoting: "Historically, dark paint (or fabric, or wallpaper)--that is, the expensive stuff, what with the high cost of pigments--went on the upper walls because that's where people would see it, not down below the chair rail, where it would not only be below eye level--especially when seated at a dining table--but where it would also be partially obscured by furniture pushed up flat against the walls, which is where the term "straightening a room" came from. If the woodwork--including the chair rail, which was there not for aesthetics but to protect expensive materials & fragile plaster--was painted at all in such a room, it was generally painted white, because white paint (or lime wash) was cheap & it could be refreshed easily when it got dingy." On the other hand, the Victorian aesthetic was often distinctly dingy, so unless you are after "cozy" in this room, "dark above" might not work. Karin L

There's going to be no way to lighten it up. It's basically what was the attic of a Cape Cod style house and it has a very small living room that's all chopped up (like a big walled-off bumpout that was built around the chimney). No windows in living room. There's maybe like 2 feet of wall on top of this wainscoting and then the walls curve and/or angle in this rest of the way, so it's not really 8 foot ceilings throughout the place. I'm really not going to be able to hang pictures or mirrors or anything because there's nothing I could hang in that small of a space. As far as lamps, plants, I'll be honest I don't know how I'm even going to be able to see in this place. I will probably be able to get a small sofa and TV in the living room and that's about it. There is no room even for end tables on each end of the couch. So lighting is a problem, and there's going to virtually not be many places I can even set up lots of my things to try to pretty it up because what furniture I stuff in there will be needed for utilitarian purposes. There's basically no kitchen storage. There's a stove, 48" sink base cabinet (which wouldn't hold a lot and it's so grody, I wouldn't put anything but cleaning supplies in it), and then a refrigerator. That's it for the kitchen. No island, no upper cabinetss, nothing. I've got a "commercial" look shelf unit that I'm going to take to put my food on and I'm going to have to get a cart to put a microwave on and then I'm looking at portable kitchen islands so that I'll have somewhere to prep food. Oh, and the "lovely" refrigerator has a strip of Velcro holding it closed. My husband wants to buy an apartment size fridge to put in its place. I'm going to go get some cheese for my whine now! LOL. Sorry for the whine-fest.

Thanks for the additional input everyone! Right now we have put Zinssier Gardz over the old paint (there is no peeling, it is quite thin paint actually). The Gardz is made to create a good surface for the new plaster to adhere too. I've been in and Hepa vacuumed and cleaned all the surfaces with a lead specific cleaner and removed all the plastic we had in there. We'll be covering with a new coat of plastic and tape soon and start the skim coating. The goal is to do 2-3 very thin coats using a thinned joint compound and a magic trowel. Trying to get it as smooth as possible to keep sanding to a minimum. It will just have to be a very careful and selective sanding to get ridges. The wall isn't going to be totally flat no matter what we do anyway, it's old plaster after all. I have been wondering if the kind of primer we use over the skim coat matters? Would an oil based primer be better for any reason? Another coat of the Gardz to help harden then a white primer? This definitely hasn't been fun and we'll have some hard choices going forward with the rest of the house which is all covered in wallpaper. It might just be new wallpaper for us for now. Possibly paint over it. I did that in my daughters room because her room is wallpaper over paneling so it was a temporary fix until we can drywall but it worked well. However the older parts of the house downstairs have many, many layers of wallpaper so I'm less inclined to think painting over them would work well. All of our woodwork is stained (thought the stain could very well have lead too, we haven't tested because we haven't messed with them) and luckily the windows themselves were replaced with vinyl windows so we're not dealing with painted window seals.