Should I patch mistakes and paint paper, or remove paper and woodchip?

Personally I would strip all the wallpaper off and start again, otherwise you will be trying to make a silk purse out of a pigs ear. I don't think by the sound of it you are going to be 100% happy unless a proper job is done! Good luck

The great old wood chip, messy and can be a pain to get off!!!! Also you don't mention how old the property is. A steamer can be used but in older properties can tend to blow plaster. If it is an old property you could try dry scraping the woodchip with a tool called a ripper (long handle with Stanley type blade on end). If this removes the woodchip or majority of it, then get warm soapy water and soak the walls to remove any paper underneath and glue, once dry prepare walls and sand. You don't mention if you intend to paper or paint walls, but for good finish I would recommend lining of walls. Hope this helps but if I can be of help anymore please inbox me. Many thanks and good luck