Hardboard ceiling and wall repair

[Mark W.]

I have a 3rd floor apartment where one of the bedrooms has a hardboard (!) ceiling that's pillowed from a previous roof leak.  (Roof has now been replaced.)  I believe the best way to rectify that is to run furring strips (might need to use 2x2s) and then either drywall or ceiling tile.  Leaning towards drywall.

The walls are hardboard too.  I'd prefer not to drywall the whole room, but I have a section of hardboard that's separated due to the weight of the roof debris that dropped into the attic.  (Pretty sure this is not recent water damage.)  Not sure what the best path here is.  Remove the section of hardboard and replace this section with drywall?  Or just cover it?  If I cover it with drywall I'll need to run furring strips, just not sure how I'm going to make the edge look good?  I'll take any ideas!