I'd definitely want to fill that space first as the gap is very large...it sounds like the wall is out of square. Not sure how you'd add backer board to square up the wall. But I'd want that done.

Thanks for more pictures...I just love your retro bathroom. IMHO, I would paint the walls an off-white or white, then you could use a matching white toilet/sink combo. For some reason I don't find the wood (mirror & cabinet) a good match for retro. Having grown up in a neighborhood of bungalow styled homes in San Diego, a lot of homes still have that retro bathroom look. I have often seen the primary color (such as your tan tiles) punched up with black accents, might not be for you, but thought I would mention it. What I would do over the sink is place a large round beveled mirror held up with clear plastic rosette holders. I would leave the towel rack, since you can cover the bar with towels. Replace the switch plates with a matching tile color or white porcelain. A mirrored door cabinet over the toilet would match the theme...not sure if recessed or not-recessed would work best in your space. What color do you love that would complement the tile color? Hope you don't mind all these suggestions...LOL. My Mom still owns the little bungalow home (she rents it out now) that I grew up in and that bathroom was pink and black...it was small but seemed so big in decor. A couple of retro travel posters or something like that on the walls would add some color that you could tie in with the towels...like maybe an orange with pale turqoise. http://www.art.com/asp/View_HighZoomResPop.asp?apn=10116669&imgloc=6-679-Z000CTVF.jpg&imgwidth=937&imgheight=641 Here is a link that might be useful: medicine cabinet

I have a full wall of Ann Sacks iridescent tile in my girls' BA; but it is white. In certain light it looks more rainbowy than other light; but OTOH it is subtle enough that Christopher Peacock used it in his house ...in his kitchen! My girls love the iridescence, but by sticking with the white it is far more subtle and flexible, and dare I say timeless. FWIW

Thanks both. mvcanada, we were thinking of buying a vanity/sink combo online so not necessarily able to buy extra material for backsplash and counter shelf, though if we go with a basic white it shouldn't be too hard to match, right? I can't decide if I would prefer a shelf that extends from the sink countertop, or one that is separate and between the sink and mirror. Might depend on which vanity we choose (still looking, as evidenced by my other post). But good point on running whatever we have to meet the large mirror. pamal66, can you clarify your last bit about the metal strip or pencil liner? Is that for the end of the backsplash on the edge of the sink so it doesn't feel like it just ends by accident? We did consider tiling the wall with the sink/toilet but we were feeling like the current half wall of tile was making the room feel smaller, and with the layout, we'd have to tile everything or just the tub (because tiling by the sink/toilet plus the tub but not the last wall where the vent is would just feel unfinished). We haven't decided on wall or floor colors yet, though the fixtures and tub tile will probably be a basic white. We love this floor: And these are some of our vanity inspirations: (this last one with a white top instead) One thought I had about the tile border was that if it doesn't match the tub tile, it could match whatever we put in the shower niche, but that's as far as I've gotten in finding an actual tile!