Why are paint and drywall crumbling off to expose nails?

On one wall of our house, particularly in one of the upstairs bedrooms, the paint and drywall have crumbled off over the nails/screws so that they are exposed (recessed, not popped). I am wondering if the drywall has expanded slightly, causing this to happen. We have had a water problem on this side of our house in the past, and I am wondering if this is an indication of water in the wall. If you have heard of this, I would appreciate your input and advice.