I think tile would look nice, especially if there is room to have a finished bullnose edge around it.

We did it here:

Is that a ledge half way up the backsplash? I am not sure of the design style but what about tiling all the way up to the ceiling?Something similar is pictured in the link below.
http://www.houzz.com/photos/kitchen/%22tile-around-window%22-

And here's my tiled window. (Pardon the rain.) I say go for it!

Palimpsest: that looks sharp! I think bullnose will fit nicely.

Saltlife: If my window wasn't so far down from the ceiling, I'd consider tiling the whole thing but really don't care for how it looks in my design. That is a narrow shelf above the 6" backsplash tile, yes.

Majra: that looks great. Seems tiling around the window gives a nice finished look.