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My house is plaster/lathe as well. In some of the places where I needed to repair the plaster, I removed the topcoat (down to the brown coat) and refloated the topcoat. You could do this, and cut through the top and insulate.
It does make sence to upgrade the wiring while you are doing your thing but you will need to remove so much, you may as well just recover with the wall material of your choice.
I know what you mean about the drywall, I love the feel of my old house. It's worth all the crap you have to put up with Maintaince wise.
Mine was built in '42
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Electrical problems on a pick-up will do that to a guy- 1990C4S
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