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I receive this type of letter frequently. It is the very rare occasion that the walls need to actually be torn out and replaced… normally the consequence of fire or water damage, not poor painting techniques. There are some circumstances where more than repair and painting is required. There are, for example, special wallpapers designed to cover old "spider" cracks in plaster walls. Very thin wallboard sheets are available to cover otherwise sound walls or ceilings that have too much damage to reasonably repair.
However, most paint peeling can be repaired with much less expense by simply scraping off any loose paint and then levelling the holes/depressions with wallboard compound. Multiple coats of wallboard compound will be necessary to get a smooth surface. This trick will also work with old wallpaper. Cut off any loose pieces and level the area with compound.
You can use wide wallboard knives to apply the compound… up to 12"… which make the job go more quickly and give a smoother appearance. Each coat should be a little wider than the repair or a little wider than the last coat. This forms a slight rise over the repair that tapers into the wall, making the repair almost invisible except in the most unforgiving side-lighting.
Sand between coats to remove any high spots in the dried compound. Wipe with a damp sponge or vacuum off the dust before applying the next coat. Each coat will give you a smoother finish. The final coat should require minimal sanding to bend the repair into the wall.
When in doubt about what paint to use over another, the most surefire way to achieve success is to use an oil-based stain killing primer sealer such as KILZ. These primers stick to virtually anything including glossy surfaces and glass allowing a painless transition between oil and latex paints.
The problem you describe is typical of a bathroom ceiling painted without proper preparation… cleaning and/or priming. Bathroom ceilings and walls differ from other paintable surfaces in the home because they suffer much more abuse... in ways even more than some outside surfaces. Steam from bathing carries particles of dirt and soap in the air, which stick to the ceiling as the water vapor condenses.
In some cases, this "contamination" spurs the growth of mildew, darkening the surface and giving the budding painter a clue that he should, at the very least clean, the surface thoroughly. He can see the filth and it is intuitive that the surface should be washed. It is when the contamination is invisible that the amateur gets into trouble. Thinking that the surface is clean, he applies a coat of paint, only to have it inevitably lift. The end result? A labor intensive repair job!
My rule is simple… never paint a bathroom ceiling without preparing it, no matter how clean it appears to be! Flat or "solid" textured surfaces (stucco, for example) should be washed with a pre-painting detergent cleaner such as Soilax with bleach added to kill mildew. This should be followed by a prime coat with an oil-based stain killing primer, such as Kilz. This will assure that the surface will be sealed and ready for finish coating.
Spray texture ceilings… so called "popcorn" ceilings… cannot be washed because the texture will be damaged. If there is no visible mildew staining… from black "dots" to wide areas of dark discoloration… apply one coat of the stain killing primer. If mildew is visible, lightly spray the stains with a mix of one cup of bleach to one quart warm water. Use with caution with skin, eye and lung protection, since bleach compounds can be very irritating to all parts of the body. The bleach will cause the mildew stains to disappear as it kills the mildew. Respray if stains do not disappear within a half hour. As an alternative, you may use a premixed bathroom mildew stain remover. Be sure you are not using a cleanser… you do not want to put any detergent on this textured surface, because it can't be rinsed off! Let the ceiling dry out thoroughly before applying the oil-based stain killing primer.
Unfortunately in your case my advice is too late. To salvage your job you must 1) sand or scrape off all loose paint, 2) use drywall compound as necessary to fill and smooth the bubbled areas, 3) sand surface and remove all dust by wiping lightly with a damp sponge and finally 4) reprime the entire ceiling prior to applying the finish paint. Use the same stain killer primer mentioned earlier.
By all means put the vapor barrier on the ground! A heavy plastic tarp,
overlapped by at least a foot or more if any seams are necessary, and held in
place with rocks if necessary.
Alkyd paint acts as a vapor barrier, so if there is a significant amount of moisture entering the wall space, it will tend to literally push the paint off the walls! Reducing the moisture from the crawlspace might alone do the trick, but since you have a recorded history of paint peeling I would advise using a latex primer and paint (or latex stain alone) instead. This will allow more of the day-to-day moisture to penetrate the surface without lifting the new finish.
The old paint surface should be sanded, scraped, sandblasted and/or powerwashed so that it will be somewhat porous, dust-free and mildew free. This will give you the best chance for success.