I am re-doing my bathroom, and am removing tile from a wall which
covers the wall about half way up. This wall is dry, and I plan on
using some type of wood paneling in its place. The problem is that
the paneling, when installed, will leave about 18 inches of the old
tile adhesive exposed on the dry wall.

My question is: Do I need to replace the whole dry wall or can I put
a skim coat of dry wall compound over the old dry tile adhesive?

Thanks in advance for any help!
Mike