Covering some smelly paint
You're describing the smell of mold or mildew. It's a living fungus that sometimes grows on walls, paint, wood, clothes when conditions are right. You want to kill it and remove it.

Mold can grow under wall paper and paint.

If it were me I would clean it with some mold killing cleaner according to directions. Remove the wallpaper, bag it and throw it out. Clean the area again. Prime and paint. 

There are special encapsulating paints to cover up mold and recently Zinsser came out with a Mold Killing Primer. I haven't used it myself but I've used other Zinsser mold/mildew resistant paints and have been pleased but as I said I'd use it in conjunction with wallpaper removal.