Why is the paper peeling? Is it actually peeling or just pulled off by
having somrthing attached to it pulled off?
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Remove the damaged area of sheetrock, and replace with backer board.
(actually, replace the entire area you plan to tile.) The Borg will have
everything you need, including the book with the pictures showing how to do
it. Not hard, just messy. Most would call this overkill for a backsplash,
since it doesn't get soaked like a shower does, but that would be the
Quick'n'dirty way, assuming the drywall is still solid under paper layer, is
to peel off loose patches, and skimcoat with drywall mud.
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