I'm confused by what's on the wall that is perpendicular to the vanity.

That's the current medicine cabinet that will be removed. The picture is just a rough example to show the layout of the room.

If that wall is going to be 'blank', yes, I personally think it would look off-balance for the tile to end at the end of the vanity. I'm sure others will have a different opinion (it'll probably end up 50-50, and you'll still have to make up your own mind :-) )

I think you could make it work if you have something on that blank wall space such as shelves or towel bars or a good size piece of art work.

I haven't found that rule yet! I would just make sure that the tile you pick has a trim or bullnose piece that you can use to have a nice finished edge. Those are the details that differentiate a well thought out job.

Went to a house local house tour recently. The owner is supposed to be a designer and since I was about to remodel my own bath, I looked at the bathrooms very closely. I was not impressed that she had "raw" tile edges showing on the edges of the tub/shower walls. It just looked unfinished and poorly executed.

I think it can work just fine. As badgergal and chispa suggested the key will be balancing the un-tiled space and having a finished edge to the tile.

Here is a picture of one where they stopped the tile in line with the vanity, and the window (and toilet) fill the remaining space.

[Transitional Bathroom[(https://www.houzz.com/photos/transitional-bathroom-ideas-phbr1-bp~t_712~s_2112) by Lyons Artists & Artisans Marc Hunter Woodworking : Design
(if you click on the image there are a few other views of this vanity and tile on houzz)

Since it looks like the entry door will swing to cover this wall, a shelf might not work, but a nice piece of artwork should.