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I think we may be getting carried away here. Whether or not any of us like or dislike denshield, it IS approved for use in wet areas. the only real question is about the drywall compound.
Sparky-- Bud's actually right. If it's going to be done the right way, it ought to come out of there, and refilled with thinset, if anything at all, and the paper tape and compound should come off and mesh tape go back up. Other than that, you should be fine to tile.
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