Take out the existing tile since no mortar is used it should come off easy enough, Then just chisel the mortar and sand it off and lay it right along with the new?

Yes, remove it all and install it correctly. That's such a small spot that there is no reason to keep the shortcut. Just because it hasn't failed yet doesn't mean that won't happen.

Pull the toilet (shut the water off first, of course! There are instructions online on how to drain and sponge the toilet so it doesn't drip water when you remove it, and how to put some rags or plastic bags in the sewer pipe.) Look at the toilet plumbing in the floor and see how the tile fits under it and see if you can fit backer, tile and mortar below the attachment point of the toilet... I am thinking there may have been a reason for the previous tile shortcut, and it might have to do with not wanting to re-plumb the toilet waste pipe. If it looks like you can fit a new install with the addition of a thin layer of mortar, I'd remove the tiles around the toilet and the old backerboard. Then lay all new backerboard so your substrate is all the same height, mortar and tile as normal.

Thanks so much, guys.

I've decided to remove the toilet and rip out the existing tile, then re-tile the whole bathroom properly with mortar using all new tiles. I had originally wanted to preserve the old tile-work around the toilet because I didn't want to go to the hassle of having to remove the toilet, demo the tile, cut new tile, etc. But I'm going to commit to it, and the room will look so much better with all the same tiles - rather than tiles that "almost" match the pre-existing tile-work.

(I think the reason that they didn't use mortar was to keep the finished height at 1/2" so that they'd be able to go under the electric baseboard heater, which is only about 5/8" above the subfloor. I've decided I'm just going to run the tile right up to it, but not go under it - because I simply can't, if I do the tile-work correctly.: it would be too tall to go under the bottom of the heater.)

Thanks again.

It is possible to accommodate a flange height problem, too high or too low relative to the floor.

Could you raise the baseboard heater so you can finish the whole floor nicely? I would look into that and stop the covering of problems. Just get it done right, once and for all. It will probably look better now and changes down the road won't be a problem.

Well my assumption was that it would be very difficult to detach and raise the baseboard heater and that's why they didn't do that originally. Not sure though. I need to research this issue and find out how to do it.
But yeah, I eyeballed the area and it definitely would not look good to have the tiles simply run up against the bottom of the heater. Not acceptable - and possibly not safe!
I will get it done correctly, thank you.

You can also use Ditra instead of cement board as an underlayment. It's easier to lay and thinner too.