The one where things don't go as planned

I have a closet that I have hated for years. And years. And well, since we moved into this house.  Its a closet that is in my bedroom, but that also shares a door on the backside with the foyer, which makes it the coat closet (wth?).  I will post before and after pics on when its done. Because the hubs is currently making it fabulous.

But in the meantime, earlier today as I was removing everything from said closet, he commented on a suspicious crack in it and I commented on the bubbled paint that was opposite it, in our room, that's been that way for about a year now.  He handed me a crowbar and away I went.  The paint came off -several colors of it - in big sheets.  Exposing this.

That's actually black.  Nice, huh?
Now, I am pretty sure that the walls were not that peachy-beige color when we moved in. So I can't be certain how long its been like that. But I would think we would have noticed it when we painted the room, right?
The good thing is that the wall was not wet. The mold was not wet.  But it smelled.  And dang, I have a headache.
The bad thing? We have no idea where the water is coming from. An ice dam last year? Soffits? Do we need to tear off the plaster and lathe? I hope not. If its fixable from the outside, can I just bleach what's been exposed and then can we seal the wall?  I have no idea, but right now, I am cursing my 1920's house.