Should a rough wall be smoothed with mortar before installing tile?

If the adhesive can be scrapped/sanded off and you have a fairly smooth wall then you can fill the low spots. If the ridges from the adhesive are raised then you're going to spend a lot of time trying to smooth out that wall. I wouldn't use thinset because it doesn't sand well. I'd use joint compound with a good primer.

It looks like that drywall can be easily cut out and replaced which is something you may want to consider.

I encountered a situation installing a backsplash on a Sheetrock wall where the wall was distinctly not flat because of the framing it was mounted on. I elected to remove it from the counter to the bottom of the cabinet and install new Sheetrock with some furring strips to flatten the wall.

This is probably not much more work than trying to flatten what you have there with joint compound.

Royal Pain the ars to make that wall smooth and workable.

I would remove the drywall and install 1/2" Denshield. No need to remove the cabinets. the Denshield will give you a nice solid surface to work with.

Added benefit to this is that while the wall is open you can change the electrical box's to adjustable depth one's, once your tile is on you can adjust the box, by turning a screw, so it is the correct depth.

I would use a White mastic for your semi-translucent glass tile.