You might want to post your question on the discussion side. This is the picture gallery and folks don't really come here to answer questions.

It's a matter or personal preference, you can do either. But it can sometimes dictated by how much wall space you have or the tub style that you have selected to install. If using a vertical bullnose to contain the subway, most people will take the bullnose and just use that down the outside edge of the tub.

There are no hard and fast rules for tile orientation. You can run them whichever way looks best to you. My daughter and my son both recently redid their bathrooms and put 12x24 tiles stacked vertically on the walls. They didn't have to decide on vertical vs horizontal for the floor because they used 24x24 squares on the floor. In my bath I have 10x13 vertical on the walls and 18x18 on the diagonal on the floor. IMO the large square tiles make their small floor spaces look bigger. Do your tiles come in squares too? Maybe you could put them on the floor. If you stay with the 12x24s on the floor placing then horizontal ( long side parallel to the tub may make your room look wider). You can still put the wall tiles whichever way you want. Here's a couple shots of my DD's tiles Good luck in your remodel.

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