The theory is you can open the window to let out the moist steam from the hot water.  

Let dry then seal the walls with a pigmented shellac (e.g., Kilz, Bins or XTM).

Do not have any return ductwork from the bathroom, as that will pull the moist humid air from the bathroom into the HVAC system and this will be circulated through the ducts; there is risk of this moist air condensing within ductwork and potential for mold to develop.Installing exhaust fan(s) in the bathroom is sometimes a good idea too.

Now that the source of moisture is gone it should stop growing although some of the drywall still seemed moist.

We discovered that the sheet-rock/ceiling board was "cheesy" in that it was crumbly and felt like it was a tad moist/had been wet at some time previously (not soaking wet/active leak).

Just make sure the sheetrock behind it is not moist or mildew otherwise its junk and should be gutted.

In the past I have had difficulty trying to go over wallpaper with mud (joint compound), because it gets the wall paper wet, then the wall paper comes lose and bubbles, then I’m left with bubbles that I try to smooth over, but my second coat of mud gets the wall paper moist again and it bubbles more in other areas etc.

Warm, moist air from the interior is getting up to the joists and condensing against the cold surface(s).

And yes, it's 100% moist resistance.

Instead, the counter top is engineered using quartz, resins, and pigment.