The epoxy paint is an interesting idea, and that stuff is expensive.
OP (Original poster)issue:
The oil/latex issue makes the most sense to me.
Repair/Repace - that's a choice
The 3/8 drywall may be the best choice. You may even cosider ripping the old stuff out, adding insulation if there isn't any and maybe even staining the woodwork. You'll have to pull the woodwork. The multimaster (see later in post) makes that easy.
Removal of old paint
Not sure if "sandblasting" with walnut shells will work.
The Fein Multimaster for scraping Fein Power Tools USA Quality Precision Power Tools
Sand to see what ares are not adhering
Standard large area hand scraper
Spackle is good for filling nail holes and not large areas.
Redi-patch is good for larger areas, but probably not a whole wall
May be your best choice for a large area. It spreads thin and it's easily sanded. You'll need a large spreader to keep things flat.
Use a manual pole sander (Drywall sander) to keep things smooth over a large area.
Use a mix of TSP and bleach (instructions on package) to prep wall. Rinse again.
Prime. Imperfections will only show after priming. They will be difficult to spot otherwise.
Check to make sure the woodwork is not affected. Paint the woodwork before the room. Makes things go much faster.
You have a lot of work ahead of you. I had the same issue with some molding. It was a really time consuming problem. I also took the time to add some low voltage wall plates to the room.