We recommend a level 4 or level 5 finish on drywall to achieve best results. Obviously the smoother the surface, the better results you will have. In practice, many customers have been able to achieve good results with Dreamscape on less smooth dry wall surfaces , such as level 3.
Many Dreamscape products have an advantage here against typical wallpapers. Especially the TYPE II, 20oz , textured items we offer. These items are very thick and most have a textured surface. The combination of thickness and texture will help "cover" or "hide" small imperfections in the wall. For this reason, a level 5 finish is not a requirement.
For our lighter weight, thinner products -- such as WallWrap, Nolar, Nolar Sailcloth or any of our 15oz vinyls, we would recommend a Level 5 to avoid the potential of seeing wall imperfections showing through the wall graphics. Same is true for any of the Flash products which have a perfectly smooth / shiny surface - these will not hide imperfections of the surface you are covering, in fact they tend to magnify and draw notice.
If you are interested in learning more about the different finish levels and how they are defined - this website will provide more in depth discussion.