How to Smooth Rough Interior Walls?

My interior walls have a very rough finish, it is quite an old house (built in 1960). The previous owner has painted the walls with a sickly brown but I can still see a very rough surface. How can I create a smooth wall surface for my walls? Would I coat it with plaster or something and then sand it down? It is sort of like rough sandpaper but not gritty. It seems to be a board like hardboard or something?

Here are some pictures to show the roughness, it's even rougher than it looks in these pics (click the links to see full size pics and see closer up of roughness etc):
Close up:
http://homedeals.info/blog/wp-conten...ll-300x215.jpg
full size pic here: http://homedeals.info/blog/wp-conten...oseup-wall.jpg

same but with different lighting:
http://homedeals.info/blog/wp-conten...l2-300x266.jpg
full size pic here: http://homedeals.info/blog/wp-conten...seup-wall2.jpg

I would also like to do something with the horrible wall diverders (I'm not sure of the proper name, maybe skirting?) . But I was thinking maybe I could just place board in between these dividers so I could make all the wals flat and smooth. Here is some pics to show you how ugly it looks:
Pic of walls near front door:
http://homedeals.info/blog/wp-conten...s1-199x300.jpg
full size pic here: http://homedeals.info/blog/wp-conten...-dividers1.jpg

Wider angle:
http://homedeals.info/blog/wp-conten...s2-300x199.jpg
full size pic here: http://homedeals.info/blog/wp-conten...-dividers2.jpg

Here is a quick mock up in photoshop on how I would like the wall to look (without dividers)
http://homedeals.info/blog/wp-conten...rs-300x195.jpg
full size pic here: http://homedeals.info/blog/wp-conten...t-dividers.jpg


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