want to report back... it works!!! well our local ACE stores don't have CHOMP! (didn't even sound like they've heard of it) and i didn't want to order online as i wanted to finish it over the weekend. so i used the already-mixed DIF. didn't soak it in hot water (next time if i buy DIF, i'd not get the ready mix, so i can mix it in hot water... but should find out if CHOMP is sold around here...) The first time i sprayed the DIF and covered with painter plastic, waited for a couple of hours, and tried to use the sponge and scott's disposable rag to get the paper off but it didn't work well at all - i thought i cleaned it off but it was still there the next day. so i went to buy some 3M scotch brite and it worked much much much better! so thanks for the suggestion! it still takes some effort to clean it off, but at least it works... after i finish a section of the wall, i clean it with dirtex and the scott's rag because the wall was slimy with glue and DIF. i like using the scott's rag since i can just throw it away as it gets gross being all slimy. so good luck to the rest of you with the same problem! thanks again to all who helped!

Would it be better to let the wallpaper backing dry after removal of the top layer, then sand it off instead of scraping it wet (which is when I've been having trouble with it taking the top layer of the drywall with it)?

I don't think I can get the paper wallpaper backing/wallpaper paste to release from the paper coating of the faux wood paneling. They've essentially fused to become one. If I try to remove all of the paper, and clean it, I'm certain I will end up with badly damaged paneling. I really think the only options are paper over paper, or paper over paste. I just need help understanding which is best of these two options.

It depends a lot how the paper was put on and what kind of adhesion was used how hard you will work to get it off. When you wet it and warm it you want to get it to the point where the paper lifts right off. The issue after that will be the remaining glue. This is where it can get really hard to completely get the glue off to the point where you can paint it without disturbing the lead paint. Also, one thing you may discover is that you do not have a fine finish that will look good painted on the plaster underneath, and that there is in fact no paint at all of any kind in some rooms. They will need a new skim coat anyway. It then becomes: do you have enough glue off to adhere a skim coat? Whatever you do, just be careful. People get all bent out of shape about asbestos and mold but neither of those are really much of a danger in an acute exposure situation, but "lead stupid" is forever . It dissolves in water, it can get dispersed in the air, etc. and if you get it all over the place it can get VERY expensive and hard to clean it out of the house afterward.