I always cut out and remove the existing walls and install new backer board. This gives you a chance to inspect the wood behind the walls, and gives a new surface for the "glue" that holds the new panels. For tiled walls, you can use either greenboard, Wonderboard or some of the other tile backer products. Greenboard for tile would be my last choice.
Terry

:
: Can someone tell me how to remove wall tiles from my bathroom. I have been using a heat gun to soften the adhesive and then prying it off with a metal putty knife.