Walls and Ceilings - Ceiling, insulation, and wiring woes

We have a ranch style home built in 1960. About 12 years ago the ceilings were water damaged by a quick heavy rainstorm during reroofing. There are a couple spots of several square feet where ceilings sag. Most spots are smaller water stain spots. The currents ceiling is 1' by 1' by 1/2" ceiling tiles. Behind this is 16" (not sure how long yet) strips of 1/4" drywall. The walls are all painted drywall.

Insulation appears to have been blown in kind. It is dirty, very uneven, and has deteriorated down to almost a powder. It was suggested to me that I could just put new down over the old... thinking I should remove it.

Wiring is the older 2 wire system with black/white and no ground wire. It also only has the old braided outer coating.

The only material purchased so far is R-30 batts of unfaced insulation.

Current plan: 1.vac out old insulation 2. gutt ceiling 3. run wiring. 4. drywall ceiling 5. roll out insulation 6. paint drywall

This project will be attempted by wife and myself and neither of us has any experience. We have a limited time and money budget. Any suggestions, tips, answers to questions, or constructive criticism will be greatly appreciated.

Questions:
1. Will we run into any problems drywalling only the ceilings and leaving the exsiting walls?(can not afford a complete gutting)
2. What is best way to remove old insulation?
3. At bare minimum we want to remove the ceiling tile. Could it be prudent/possible to leave the 1/4" strips of drywall up, cut and patch any bad spots, and do some sort of textured ceiling?(we do not want to deal with tape/mud for seams every 16" for even painting)
4. If we redo all ceiling with drywall what would be best thickness/type to use?
5. Anyone know of any other affordable options other the drywall or ceiling tiles that would be comparable in price?
6. Any suggestions for cleanup/teardown strategy? Tear down all at once? One room at a time?

Since there is a double ceiling, you are probably going to have to remove everything & start again. Now that 12 years has passed, who knows how much mold is there? Make sure the walls haven't been damaged too, especially if any of the sagging spots are near the walls.

Find out how long the strips of 1/4" "Drywall" are have they been painted? I bet you have gypsum lath. You could plaster the lids. This is probably not something to try yourself but gypsum lath if that is what you have is the easiest thing to learn on.. Plaster is cheap. Plasterers are not. You could do a room for less than $100.00 plus paint.
Now of course I could miss my guess and what you have is a bunch of junk someone put up to hold the insulation.