What's the easiest way to fix a smallroom that has old wallpaper?
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kind of depends on what the room is used for. Cover the bottom 2/3rds with MDF board and batten and either leave the wallpaper as is or strip it and paint over it. Also, there's all kinds of panelings you could cover the walls with or cover them with faux ship lap and lastly strip the wallpaper and repaint.
I would remove the wallpaper and paint the room a light color using semi gloss paint to help reflect light and give the appearance of a larger space.
Make everything else(accessories) match the wallpaper/room