Installation looks good/right either way. Chances are you will never have a problem with valve. For valve repairs on a wall mount you would need access to inside the wall anyway so messy situation no matter the splash height. If this is for a much used faucet the higher splash will protect from wall damage due to drips while turning knob.

Mastic can be used as an adhesive in non-wet areas. Your drywall is obviously in good shape, which means by itself it's not being hit by or incurring standing water. You didn't mention and water staining or degradation, so sure, mastic can be used to adhere the tile to it. Grid lines: It will most certainly help to add layout lines on the wall. It might help to strike chalk lines, then use a straight edge and sharpie marker to go over those lines. With differing tile sizes, you are correct in that you use the layout grid lines for overall guidance to keep the overall layout looking good, but on a tile-by-tile basis within the grid lines, the tile spacing is adjusted plus-or-minus here and there to keep that overall pattern looking good. Regarding uneven tile sizes...you might want to do a rough mock up. Your goal will be to not have a larger-than-normal tiles adjacent to several other larger-than-normal tiles. Several large tiles in a row can really throw the layout off. Same with several smaller-than-normal tiles in a row. That can result in a run of wide grout joints. Try to work out your layout and installation so larger-than-normal and smaller-than-normal tiles are mixed and mingled throughout the layout. Mastic usually holds tile pretty well on the wall, it's usually a "no sag" installation unless the tiles are heavy. If you think your tiles might sag, then have a collection of tile spacers and/or tile spikes (spacers shaped like wedges) to prevent sagging. These can be store bought or home made. I'd clean off the backs of the tiles. Use a sharp chisel to shave the dollops of silicone off the tile. If you start with crap, you'll end up with crap. Why start with compromised materials? If you use the "premixed adhesive" (mastic) to set the tiles, wait several days before grouting. Mastic cures by drying, so it needs air. If you use the "premixed grout" which is also a mastic-like material, read the installation and cleanup instructions. It can shrink as it dries, so it might not be the best choice if you have wide grout joints as the excessive shrinkage could result in it pulling away from the tiles. If you decide to opt away from the Mapei premixed stuff, see if they have Mapei Kerabond and Mapei Keralastic. That combination gives good working time and good stickiness in terms of minimizing sag. Mongo

numbersjunkie, badgergal, loves2read: Thank you for the suggestions. Using numberjunkie's idea, I looked into just a band of tile that would come out from the shower and run along that wall right at the sink level, to function as a backsplash. But it looked odd with no tile or wainscotting below. (Our house is a little too contempo for wainscotting.) Vinyl wallpaper is one thing I hadn't thought of. We spent so much time/money removing wallpaper when we moved in (think 60s psychedelics), I'd have to talk my wife into tryiing it again. But I like that. Or maybe, as badgergal suggests, I could get by with a quality paint (semi-gloss probably). You've been quite helpful!

I'm back, with my kitchen pretty far along now, but I still have a question about the tile! Originally I had thought I was going to use white subway tile, but I found this beautiful matte 3x3 gray ceramic tile at the Heath Ceramics factory for a very good discount, and couldn't say no. My cabinets are all in, the range hood is up, I have mounted 2 wooden shelves to the right of the hood. The plan is to tile everything under the upper cabs, filling the wall space. The tile will go up to the bottom of the range hood. I'm ending the tile horizontally at the outer edge of the open shelving. Now my big question is: do I end the tile vertically at the bottom shelf , i.e.- in line with bottom of upper cabs, or tile up to the bottom of the upper shelf, i.e.- in line with the hood? Any advice or opinions much appreciated! I'm attaching some pictures, very messy as the tiling is in progress. The tiles appear darker in the photos than they do in real life, and especially in daylight, which my kitchen gets a lot of. The actual shelves are not up right now, just the brackets. I'm also attaching a photo of the materials/colors used in the kitchen: white, wood, carrara marble, gray ceramic.