Well, at this point all you can do is thorough sanding of the walls to remove the roughness. Wipe/clean off all the dust and then prime with Guardz primer. Repaint, done. If that doesn't work, well, you will be skimcoating those walls which is a much more involved process.
I have seen 'burn-through' of starch from the paste that damages the dry paint film causing alligatoring and chipping. Try to sand off as much as possible before reproming, Like Gynschu said. Zinsser Gardz is excellent or an oil-based enamel undercoat.