Patching and Plastering - How do I fix paper shredded off of drywall?

Here's my situation: http://forum.doityourself.com/showthread.php?s=&threadid=156531

I'm inclined to just keep sanding down these stubborn layers of paint off of the drywall, but this is leaving me with patches of paper torn or sanded off of the drywall, exposing the gypsum in some places. I have no idea what to do.

As a total novice, I thank you for your patience with my ignorance.

Best,
Julie

I believe if you would of just lightly sanded the old paint to take off the gloss, then applied a primer or a flat paint to the walll you would of been fine. The best thing i would reccommend is to take a large tapeing knife and try to recoat the spots. use a fast drying mud like sheetrocks 20min mix to speed up the process. hope this helps

Hindsight is 20/20, right? We're hating learning the hard way. With the areas that my boyfriend coated with the Peel Away, is it still sufficient to just buff the walls with the sander? Our fear is that because this is an active bathroom subject to high levels of humidity, this might cause further bubbling and tearing of the layers of paint in the future if we just paint over the damage.

Ugh. This is such a mess.

Please keep the ideas flowing here - we really appreciate everyone's help.