Drywall Painting: Do I need to keep priming here

If you select boards with knots, there is a good chance that they will bleed through, even if you use a sealer or shellac based primer. The resins in knots is persistent.

Clear boards are usually used for moldings, including baseboards. You could also use MDF (medium density fiberboard) or solid vinyl composite molding. When painted, they are hard to distinguish from wood in most applications. (I think they look a little too smooth and I prefer wood). For painted applications, there is also fingerjoint molding, which is made of interlocked short pieces and is cheaper than clear boards. Much pre-primed molding is fingerjoint. Occasionally these joints may show if the quality is not high.

For wood or MDF, a light sanding with 120 grit paper is recommended to remove milling glaze and to give the wood a tooth to better take paint. An orbital sander is fine

Then prime and paint. Many prefer oil based primer on raw wood and MDF. Some vinyl says it can be painted directly, but I would also give it a sanding (or avoid it unless necessary, such as in outdoor uses).

Latex paint is fine for a finish coat, but it tends to look less smooth than oil (alkyd) based finishes. Adding a leveling agent like Floetrol helps, but nothing lays as smooth as a good oil based enamel.

(P.S. To me, using a really smooth straight clear board, in furniture or in molding, is appreciating and honoring the wood, the tree, nature. But to each his/her own.)

I do not think you will have good results if you try to sand this primer, it will leave visible surface defects and clog up your paper. If you let it cure for a month or so it would be sandable with very fine sandpaper.

I know "the ship already sailed" because you already started, but this is not really the best primer for your application. The high-solids content of this stuff is basically for resurfacing problem surfaces, although it does have good stain blocking properties (see technical data sheet). You should use the very best applicators and very careful application technique to get the smoothest prime coat that you can, because your prime coat imperfections will affect the smoothness of your finish coat; it's just the nature of the primer you chose. Do not apply a second coat unless you need to, to cover imperfections of your first coat.

Although there are many ways to skin this cat, next time for cabinets or other fine woodwork consider a shellac based primer if you need stain blocking properties. It goes on thin and smooth when applied correctly and allows for a beautifully smooth mirror-like finish coat. Good luck.