We are installing quality engineered flooring and hope to staple in down. There is very level, secure, thin masonite layer over the original floorboards (which are thick and at an angle). Do we need to rip the masonite up? My guess is it was installed to make the floor level before they laid carpeting when this 50's house was redone 10 years ago. Our installer thinks this will be ok as long as he uses long staples and we sure don't want to spend the time or money to have someone do new subfloor.
Your description of the sub-floor scares me! The engineered floor is not going to flex the way the carpeting did and you are about to put a lot of faith in that thin masonite being able to balance things out. If you can find the money I would really encourage you to address the sub-floor issue. Be careful.