Plaster Walls?

Although many factors are involved in this decision, I think the main one is that you seem to having a good time. I'd say go for it. Start from scratch. Rip out the plaster and install whatever is "the right material" for walls in moist places. Even better, take pictures of every completed step. If you sell the house, the pictures will impress someone like me.

What do you plan to finish the walls with?

Be aware that regular plaster walls reduce sound transmission a huge amount compared to drywall. If you replace with drywall, sounds from the bathroom will be way more evident.

Hmmm, good question. I think we'll just paint with some wallpaper border at the top. That's what my wife has done in the past. Also the shower will be a fiberglass sectional one so i can get it into the room without ripping any walls out.

I'm c>

If you're installing wallpaper, you'd better be installing a fan, too. Otherwise, start learning some new obscenities for the time when you have to strip off the wallpaper because it's beginning to look like crap.

I would use the cement board for underlayment for tiling the newly exposed areas. I would also keep the plaster in the areas where it's undisturbed. As long as it's not crumbling, plaster is stronger (denser) and there's no paper for mold to live on.