K: This is interesting. Are all the walls treated in the same manner, or are some of them plastered and just a few left in the state you describe? Can you actually "see" thru the lathe to the back of the wall on the other side?
I want to just say that adding drywall will not reduce your homes sales value. But the job has to be done correctly. You could perhaps install the product over the existing lathe, if it is fairly plumb and level and all that. Otherwise, remove it and install the gyp board. Hopefully, you can "cut" the new gyp board around the existing wall trim.
I would be concerned about fire. If many of the walls are like you say, you have no way to contain a fire......not that homes are good at that anyway unless designed to do so. And, these walls are nothing but "tender" for a fire. NOT a good situation.
My guess is that the walls were prepaired for plaster and for some reason this surface was not installed. I just have never heard of this sort of application before.
As for the wall paper, there are very high quality papers that have heavy "sizing" backing somewhat like you described. This could be what you are seeing. I will discuss this with others that may have more knowledge in this area than I do.
Sounds like you have a nice place. Don't be afraid to upgrade. Just do it so you can't tell.