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Replacing the drywall would probably be best, but if you didn't want to do that I would scrape everything as flat as you can get it, coat it with primer, and patch everything with joint compound. Pull the joint compound tight, do multiple coats, and scrape with a clean putty knife between coats to knock down any ridges created by the knife you are using to do the patching. Remember to make each coat cover a little more of the wall then the last. Sand it (with premixed joint compound and not that much wall space, a fine grit sanding sponge should be enough) and prime all the joint compound. I would put the vanity in before painting the finish coats. Also, allow for proper dry time at all stages to avoid trouble.
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