Hm, I had been wondering if you'd taken the past surround *down* or just put the new surround over it. If you've *taken it down* and you didn't see any rot behind the sheetrock when you removed it, then I'd venture to say that you're safe. There was *no* black or otherwise unpleasant anything where the low point was? Checking downstairs will eliminate the other one possibility, which would be that the rot went straight down and didn't communicate upwards at all into anything you removed. Which would be odd, but I guess possible. Maybe you just had *really good* sealing. We don't.

Ameriwall has a tub surround with a 72" back wall. It can be cut down for a smaller tub. Might be others, that's the first one I found. 7230TA

Yes, the plumbing needs to be done first. Yes, you may be able to just get another acrylic shower wall to cover over everything, if the wall is not moldy or wet behind the tile that you are looking at. There is no need to replace the tub itself if it is in good shape, even if you do decide to take down the wall tile and replace everything from the studs out. Just make sure the workers cover the tub well to protect it while the work is being done. I am with Monicakm_gw, get some more bids for the work. You might want to have them bid on just replacing the walls with new fiberglass, and on doing the whole new tile job, too. You can see new walls at Lowes, Home Depot, and Menard's online. There is also the whole Marbleite wall option to look into. Local dealers for Marbelite are supposed to be cheaper than buying from big box stores, if I remember right. While you are fixing plumbing, you should probably put in a proper mixing valve to protect from scalds. It is the code now. No one will be able to turn the water too hot to burn themselves and flushing the toilet or using the water elsewhere in the house will not burn the person in the shower anymore, either. I have read the experts here on the forum say that the Symmons Temptrol system is very good and is a good value. Here is one that comes with the shower head and tub spout for under $100. http://www.homedepot.com/p/Symmons-Temptrol-1-Handle-Tub-and-Shower-Faucet-in-Chrome-S-96-2/100643619

That is an incorrectly done project. You need an alcove tub with an integral tile flange to use as a tub shower. You then build up the end to be a bit higher ledge instead of a wall. The other 2 walls would fit flush over the tile flange.