I think I know exactly the stuff you mean - called insulating board (I think) and it's like the stuff you get on pin boards for thumb tacks. I had a previous relative buy an early version timber frame house that used this stuff and when we came to decorate (it had been covered in woodchip liner) it was so bad he decided to bite the bullet and we ripped it all out and replaced with standard gypsum and skim!!!
It will cut with a recip jigsaw and a course blade - and for god's sake make sure you wear a mask!!