Instead of running the narrower subway all the way to the floor, have you considered a wider ("taller") tile for the first course, to simply act as a baseboard or transitional piece from floor-to-field? Doesn't have to be an actual baseboard type of tile, or even a contrasting tile. The tile can be the same color as the subway should you prefer it to blend. It can be a simply 6" or 8" square field tile from the same manufacturer. As you know, blending colors may help with hiding a discrepancy, contrasting colors can accentuate it. On the flip side, you could separate the base from the field with a liner or some other detail that melds with details you have higher on the wall, at the chair rail for instance. Again, if the liner contrasts, it may accentuate. A basic 6" square tile, or to keep the subway shape, a 6" tall rectangle, would absorb the floor slope better than a "shorter" tile like your current subways. A 6" tile going from 5" to 6" would hide the discrepancy better than a small subway field tile going from 2" to 3". An 8" tile from 7" to 8" might be even better. If you were to use a true base cove tile like a sanitary cove base, use a basic sanitary instead of a shouldered sanitary, as the shoulder will be cut off due to the slope and that could create lippage or padding out issues as you go down the wall. Sometimes I've even used a taller painted wood baseboard to transition from a sloped floor to the field tile on the wall. An 8" tall wood baseboard scribed from say, 7" to 8" to hide the floor slope, with cap and base detailing, would pretty much hide any height discrepancy from the slope/scribing. The easiest and least expensive "all tile" solution would probably be a basic 6" square tile, scribed and cut from 6" to 5" as needed.

"Back in the day", the mesh wasn't that great. Then it got better. But I still find the occasional out of whack sheet, or box of sheets. So "is it a common problem?" In some ways it's not as common as it used to be, but some import tiles seem to have horrific quality control. If only a few are errant, I'll pull them and reset. If there are too many...then I return the entire order. I had one situation where I had to pull every tile off the mesh backing and set them individually. Fortunately it wasn't a huge area to tile, it was a fireplace surround. 3/4" by 3" natural stone tiles.

As a real estate appraiser I would advise to try to keep it. It will reduce the valuation by a few percent. If I were to appraise your home, I would now have to compare and adjust it from a 3 bathroom home to a 2.5. That's anywhere from $2,500 to $5,000 adjustment downwards. Understand that I don't know where you live or your real estate market. Even though there is no bedroom on the floor, it's a very usable space. At the very least, I'd put in a shower. You just never know when someone will lose their mobility. It looks like an older home. If your laundry room is in the basement, you may want to reconfigure it to bring the laundry up to the main living area. That would be an improvement in utility and the only reason why I would consider eliminating it. Hard to see everything, but you could reconfigure the doorway/entry and take over that vestibule area.

I wouldn't - its' a personal preference, but I think it looks best with a color that matches the tile. If you decide to make it a darker grout, it could be a nice look as well. In that case though I would do a lighter taupe.