When a lath-and-plaster wall has loose plaster, you shouldn't just put more plaster over it, because the base is no longer solid it will quickly crack again. Either remove the loose plaster, or secure it down.
One way is with special "plaster washers". These are light curved washers made out of spring steel. When you screw them down over plaster, they force themselves flat, while putting light pressure on the plaster below -- effectively securing loose plaster to the lath. All the holes in the washer are there mostly to let your new plaster stick to the washer. I found these washers at Lee Valley Tools.
Once the base is solid, you can either put on finishing plaster to make a new smooth wall, or cover the old not-quite-smooth wall with thick wallpaper or prefinished panels. You could also screw down new drywall, as thin as 1/4 inch thick to make a new surface. Be careful with panels over bad plaster, though -- if little pieces fall down between the wall and the panel, you will not have a flat panel. Another possibility if you?ve succeeded in ensuring the plaster is solid but it?s still not at all beautiful is to cover it with a thick rolled-on texture material called "Fibre Decor".
If you are going to plaster the wall smooth, the standard has always been to use drywall compound because it sands smooth so easily. But you have to put it on in thin coats to avoid cracking, and it does shrink a lot. Don't use compounds that are virtually unsandable like Durabond 90. Sheetrock 90 is a new material that sets chemically (rather than by drying), so it doesn't shrink, but it is sandable and is now a very good choice for serious plastering jobs.