I had a similar issue and used some pvc trim and faux painted it. You could use some crown trim, or some crown trim tiles.

http://ths.gardenweb.com/forums/load/bath/msg0718384732262.html

Here are the final pics
http://ths.gardenweb.com/forums/load/bath/msg092039319369.html

Barb, thanks for the response, that is an amazing job you did on the faux finish! Great solution, but how exactly did you attach and seal it? Thanks!

Some backer rod and paintable caulk would work. And then paint it the ceiling color. It will all disappear then.

Or, tile the ceiling and that will pretty much cover the gap.

I'd probably tile the ceiling. If it was buckling before, tile will protect it against moisture doing that again. Of course, you should fix the root cause by putting in better ventilation, but tile can help too.

I put the trim up using thinset.

If I was to do it again, I would probably go with a bigger crown molding.

At the time my goal was to minimize my patch.