If you can't raise the drain any higher, you're only talking a 1/16". You can leave the joint around the drain a little wider, and just slope the grout down. As for the difference between using a square notch and v notch, it depends on the size. The usual culprit is a 1/4x 1/4 square notch and it will leave alot more thinset on the floor than the v-notch that I specified. What then happens is the thinset will purge up thru the grout joints, and you end up with a mess, and actually pregrouting the tile with the thinset. Not a good thing.

1.What type of tiles are best along the pan? What is the difference between cove tiles and sanitary cove tiles? In most residential applications, the flat tile will be run straight down to the pan. One way or the other, the sanitary base would be the one you have to use, if you were to go that route. The difference is simple. With cove, the flat edge where the cove ends (the edge that would be facing the same direction as the face of the tile) is unfinished, made for the floor tile to abutt it and continue on, for a smooth transition from wall to floor. Sanitary base is made to sit on TOP of the floor, with that edge being glazed the same as the face of the tile. 2.The existing Walls will be replaced. What is the VERY BEST waterproof wall material to put behind the shower tiles? Is there something improved over greenboard? Can the upper part of the wall just be finished and textured like regular drywall? First off, greenboard can NOT be used as a tile backer in a shower. It MUST be cement board, unless there's a waterproofing applied over the top of it, and personally speaking, I don't even agree with that. Now, cement board is not waterproof, and there has to be a vapor barrier placed behind it, unless again, you use a waterproofing over the top of it, and for that, I would go with either one of the several available roll ons such as Laticrete's 9235 or trowel ons, such as Hydroment's Ultraset, or a sheet membrane like Kerdi. As for above the tile, you can stop the cement board just under where you want the last course of tile to be, and continue to the top with greenboard, which can then be finished however you like. As for tiling around the front side edge, could you elaborate a little bit on that?

Making the tile and wall surfaces flush, (in the same plane), is commonly done. You just have to fur out the walls, which indeed, does make the room a little smaller but you'll probably not notice the change. I did it in my bath remodel: http://www.billbblog.com/Diy/34/Tile-Shower#Shower to Room Transition

The way I read your text versus the photo is that you're concerned about the vertical trim tile, the run of vertical trim tile pieces in the left part of the photo, between the mirror and the shower glass, and how that trim tile butts into the bottom of the crown? Within the shower itself, at the top of the tiled wall, I simply see field tile on the wall. I don't see any horizontal transition/trim/pencil tile between the top of the wall field tiles and the bottom of the crown. In your photo, I see a shower wall that is thicker than normal when compared to the bathroom walls outside the shower. They used the tile trim pieces at the left edge of the shower wall to hide the thickness of whatever is behind the shower wall tile; floated mud, added cement board, furring strips, who knows. The sink backsplash, while still thicker than normal, does appear to be not as thick as the shower wall by maybe 1/4" to 1/2" of thickness. There is a vertical break and return in the backsplash that lines up with the left edge of the shower wall. So it looks like the sink backsplash is a little thicker than standard. It could be that the backsplash tile is simply a thicker than standard tile. Or that it was padded out a bit for visual interest. Then the shower walls were padded out more. Personally, I like depth in walls, I like transitional breaks from one space to another. It adds detail and shadow lines, and that bathroom has them. Regarding the crown itself, I see fairly standard ogee crown that has been bumped out with a backer piece. The backer piece is thick enough to stand proud of the vertical trim pieces. The backer piece could also be padded out by another backer piece. Sounds weird, but with the thickness of the shower wall compared to the regular wall, it makes sense. So, for example, the crown on the wall above the mirror is padded out with a piece of 1/2" backer. That gives you the added detail at the bottom of the crown, the added "step" in teh molding. For example: Let's say the crown over the shower is padded out 1-1/4" total. First by a 3/4" thick piece of wood that is unseen. Then the same 1/2" thick backer that was used to pad out the crown above the mirror was applied over that 3/4" thick padding, for a total of 1-1/4". Here's a basic drawing showing how to pad out crown. I usually add a detail to the bottom edge of the backer, but this just shows a basic square edge. I can't think of the last time I installed crown directly to a wall. 15 years? I do this all the time. The backer gets nailed off to the studs, with the nails eventually hidden by the crown. No nail holes. The crown gets nailed off to the backer as needed. With the backer or padding, every nail placed through the crown provides positive holding power versus having to cross-nail the crown through drywall and hoping for the best.