I can't help with choices, but as far as the substrate, the drywall is fine. Make sure any substrate is clean and dull before applying a mortar. Simply wash with Dirtex, lightly sand and vaccum. It's then ready for mortar.

When you remove the backsplash, take a sample of it with you to a tile store and find a good sales person who can help you through the selection process. Tile design can be very difficult as, unlike working with fabrics where the designer has done a lot of work for you, you are designing the colors, patterns, textures and sheens all yourself. It can be daunting without help if you're not big into design.

You can go with a plain 4x4 beige but that is a really "safe" choice. Subway tile is not 'bold' but rather another standard choice. Both can be laid in different patterns for more interest, but the more complicated the pattern, the more expensive to install as it takes more tile and entails more cuts. There are also many other tile shapes (diamonds, mosaics, arabesque, etc.) And your choice of grout color can make the pattern more or less prominent, depending on how it blends or contrasts with the tile. But whatever you choose, make sure the tile and the counter colors blend nicely as they are right next to each other for the life of the kitchen.

Below is an example of the same tile laid in a different pattern over the cooktop.

Kitchen · More Info

They make very beautiful and expensive tiles in glass and metals and natural stones including mosaics. To make a backsplash more interesting without blowing the budget, you can use a standard tile background and then add in fancy tiles as accents, or add a narrow stripe, maximizing the impact while minimizing the amount of expensive tile you need to buy. Important to keep in mind is the size and busy-ness of the counter. A simple backsplash works well with a busy counter and vice versa. What you don't want to do is go busy with both. Your counter looks to have a fair amount of pattern so to go with a plainer background tile with some accents that pick up the other colors in the counter would be a great option.

Here's an example of using an accent strip against a plainer background

Highland Park Custom Home Remodel · More Info

Kitchen Remodel, Medina, OH #2 · More Info

You can spend some time with pinterest or houzz.com to get tons of ideas for backsplashes.

Subway tile is a good choice, especially if you're doing it yourself. When you get involved with tile setting like the Medina, OH kitchen, you can end up with several hundred cuts, (top and bottom) and the cuts are critical, not close enough, if you wish for a beautiful, aligned appearance.

Your oak cabinets and tile flooring lend to a more rustic feel, have you considered a stone backsplash like tumbled marble or travertine?

tumbled marble:

Travertine

Sorry for the delayed response -

Those all look really nice - I guess i'll have to pick up a few samples.

I saw online one of our neighbors a few houses down has a small octagon back splash - it is grayish / cream in color like natural stone. Looked pretty nice from what I could see - would something like that work with my current colors?

I like the wall color, but i'm always afraid of clashing between the tan granite and the gray walls.

I'd also eventually like to rip out the linoleum flooring and either re-finish the hard wood floor underneath or lay down tile - so either way i'm trying to look long-term. Something that will work with the current floor, and future (wood or tile).

We do have (unintentionally) have a more country themed house - I think we are both OK with that, but we don't want to over-do it if it makes any sense. Our living room (open to the kitchen) also has similar colored furniture. So I want to ensure it goes with that whole floor.

My last concern is the baige color the rest of the house has - the desk on in the distance to the left of the oven would need the same back-splash - should that have the same back splash? My wife and I had talked about re-painting the baige, but that may be a whole different discussion unless anyone is has any ideas.