Need advice for living room - currently wallpaper over paneling over sheetrock

Our house was built in the late 60's. We purchased it 3 years ago. The previous owners painted directly over the wallpapered living room. Not sure of their exact reasons for doing this, but it did not look good. Very visible wallpaper seams and sags in multiple locations, as well as paneling seams visible here and there. We thought the previous owners had told us they had tried to remove the wallpaper from the paneling and couldn't get it off. Last night we decided to try it ourselves in one section, and discovered that it is very easy to peel right off - at least in that area. Underneath is wood paneling. I dug behind the paneling in one location and discovered some type of sheetrock beneath it, and assumed it was drywall. I did see one seam and noticed that it wasn't taped or mudded. Since neither my wife or I like the paneling look and prefer drywall, we decided we'd tear down all of the paneling to expose the drywall, do the taping/mudding ourselves, and then paint when that's all done.

I should add that we are on a very tight budget.

Today, I started working on an entire section of paneling and quickly discovered one issue. The outlet boxes and door frame were installed to be flush with the paneling - not the sheetrock behind it. So if we proceed with this plan the outlet/light boxes will extend a bit in front of the drywall. Not sure how to solve that problem. Any suggestions? (Attaching one picture of this issue.)

After getting 90% of one section of paneling worked loose, I peeled it away from the wall enough to see behind it and discovered that the "drywall" is in 16" tall sections side-to-side. More importantly, I now noticed that the seams are not structured in a way to allow for the placement of a piece of tape. Meaning the edges don't dip in at all. (Attaching two pictures of this issue.)

What are our options for proceeding with this job? Option 1 obviously is leaving all of the paneling up, ripping down the wallpaper, and painting the paneling. Doable, but certainly not preferable.

If we remove the paneling, what then? Is it feasible to tape and mud sheetrock like this, keeping in mind how many seams there will be with 16" widths, and with no indentations for tape. If we can tape/mud it, how do we solve the outlet/light box problem? Would I need to open up the walls behind each box, remove the box, and re-nail it to the stud a little farther back?

Essentially, I'm wondering what our options are, and hoping to find a solution that will look very good without requiring a lot of cost.

Also, what exactly is on our walls behind the paneling? Is it drywall? Some type of papered plaster? Why 16" widths???

 

What you have behind the paneling is gypsum lath sometimes called by the USG brand name RockLath. It is 3/8" thick and was the contemporary base for gypsum plaster when your house was built. You could plaster it. But plaster for a job the size of yours is not amateur friendly. It is doable but you have to learn how to do it and there is considerable mess involved, especially for a beginner.
So you could drywall over it. You could use 3/8" drywall and be pretty close to the right thickness on the outlet boxes.
Or you could tear off the lath and drywall with either 1/2" or 5/8", whichever works out the best for the boxes and door jambs. I guess if you take off the lath you could adjust the depth of the boxes. You would also have the option of upgrading the insulation, if any if you tear it off.
Were it mine I would plaster it. But then that is what I do.

I have not done this but I think you could use a two coat veneer plaster system and work out just right. You would have to tape all the joints with mesh tape, set the tape either in the veneer basecoat material or a setting joint compound then plaster with veneer plaster basecoat and a smooth or textured finish, your preference. This is a bit less messy than conventional plaster, is thin enough that the jambs and boxes would be just perfect and gives you most of the advantages of plaster but not the thickness. But Veneer plaster is designed to go over panels the same size as drywall with many less feet of joint than you have but the substrate is certainly designed to accept plaster.

The more I think about it the better I like the idea of an amateur tearing off the lath and putting up drywall.

One thing if you do this is that if the walls are not straight you will have to do some shimming before you put up the drywall. The plasterer would have made the walls straight and true but you will have to have the studs straight first instead of doing it with plaster. This is true if you leave the lath and drywall over it. And if you decide to try to use veneer plaster you can do only minimal straightening with the plaster, but maybe you can do enough if the walls are pretty good already.

 

After doing some more research since posting this question, I was leaning toward putting 1/4" drywall up over the existing gypsum lath. That would get me really close in terms of door jams and electrical boxes. I think I'd only be ~1/8" off (in the opposite direction, which is better) instead of 1/4" off if I use 3/8" drywall.

Knowing that the gypsum lath is base for plaster, though, has me wondering about going with plaster. I have no desire to attempt plaster myself for the first time ever in our main living room. Wondering about having somebody with experience do it though. It sounds like you have quite a bit of experience working with plaster. Any idea what someone would charge to plaster what I've described? There's about 50 feet worth of 8-foot-high walls. I'm sure prices vary a lot based on experience, requirements, and location, but a general idea would be helpful.

I'm not sure if I'm interpreting your last paragraph correctly. If we decide to leave the gypsum lath and put 1/4" or 3/8" drywall over it, are you saying we'd need to worry about shimming the new drywall?

 

Plaster walls are superior to drywall but it costs more. Back in the day, they didn't worry too much about getting all the studs nice and straight because the plaster guy would fix in variances in the wall with his plaster. What tightcoat means is if you want a perfectly flat wall with drywall you might need to shim or plane the studs or maybe add a straight stud along side what was originally installed. If you aren't a perfectionist and the wall isn't too bad - you can hang and finish it as it is.

The only thing I have against using 1/4" drywall is it will bend and follow any waves in the wall - if there are any. You can buy electrical box extensions if needed - they extend the box to meet whatever additional thickness you might need. A big advantage to opening up the wall is it allows you to inspect/update any electrical and insulation on the exterior walls.

 

Thanks for the advice!! We decided to rip it all down and put new 1/2" drywall up.