I found some really large tiles that look like wallpaper, and was planning on putting that on all the walls of my 7x3.5 ft powder room.
Is there any downside to tiling all the walls?
If you tile the walls all the way up and the floor is also tiled, the room will be rather echo-y, and tile is very permanent. other than that, no. It will be very easy to clean and you will never have to repaint.
I tiled one wall only (behind mirror) and probably should have done more, but the tile I chose was pricey. My powder is about the same size as yours. My mother's regular bathroom is tiled 1/2 up all walls outside the shower and is easy to clean.
As palimpsest says, it might be echo-y but if you have a window in the room you could soften the effect with curtains/roman shades, or hanging something soft on the wall - some fabric to absorb sound. Alternately, you could tile 1/2 way up for ease in cleaning and only have to repaint the top half of the wall every so many years. That would "freshen" the look periodically.
i guess the thing i worry about is that tile is so permanent. is this the kind of thing that will totally go out of style in 4 years?
If you are worried about it going out of style, I wouldn't choose it. If you like it and don't care if it is in or out of style, choose it. But tile is permanent enough that the styles are going to stay around because people aren't going to redo it.
What about just wall papering the room?