Re: Cheesecloth-backed wall and ceiling covering
They used to hang wallpaper over muslin cloth that had been attached to interior wall sheathing boards with small tacks. This cloth cushioned the wallpaper from cracking as it would have had it been directly glued to the wood. I'd bet that some later individual applied drywall compound to the wallpaper as a shortcut.
If you peel off all the stuff, (and it should come off readily) you can drywall over the wood planks (with 3/8" rock) and have nice flat walls.
Remove not the ancient landmark, which your fathers have set.