Advice needed for preparing wall for painting
Blending/matching the existing wall texture will most likely be problematic. Normally, with a smooth wall I would do exactly what the post above said and carefully shave off as much of the ridge as possible and then feather what's left with a thin coat of drywall mud, etc. I've also found that a very sharp chisel works exceptionally well for knocking off a paint ridge like the one in the picture. Just make sure that you use both hands and use your "off" hand to stabalize/guide the chisel along so that it glides smoothly through the paint ridge without the risk of gouging or chunking out the underlying wall.
Getting the texture to blend is going to be the only major hurdle to overcome. If the old chair rail was damaged or just didn't suit your taste you could always go back with something more non-descript like maybe a 3/8" x 4" paint grade finger jointed moulding, which shouldn't be too terribly expensive. Cut to fit, level it, install it, caulk all edges, corners, gaps, etc. and you're ready to paint everything without having to worry about trying to match and blend that wall texture. Oh yeah, another thing that makes installation go a lot faster is to spend a couple of minutes zipping around the walls with a stud finder and a pencil. Put a mark right above or below where the new chair rail will go and when you paint everything later on it'll conceal any/all markings. I've noticed in older homes that wall studs aren't always where they should be in accordance with todays building codes, so taking a few seconds to make some marks might save you some headaches during installation.
Okay, I've rambled on long enough, time to get back to work, and good luck with your project! Let us know how things go for you.