I vote option 2... It seems to give you a more dramatic look, especially with such high ceilings.

twn85, thank you for your vote. i think i will go for the tile all around the room. i love the look of it, and am crossing my fingers that it will not look too busy..

Option 2! Definitely. If you can afford to do it, I think this will make the whole bathroom look unified and will look terrific.