Oh I love period tile! I think the dark trim shade of blue tile is particularly interesting. The first step would be to get rid of the wallpaper, which looks kind of grandmotherly, and paint the walls. What kind of tile is that on the floor? I can't quite tell from the picture. Is the floor original or a replacement? The color looks a little greener. If it isn't original, I'd be tempted to retile the floor, possibly in the color you use for the walls, though maybe with some dark blue accents. I'd also suggest painting the little wood cabinet. Is there any painted wood in the room? White trim on the door perhaps? Or is it all in the same light wood color as the cabinet? If the latter, I'd be tempted to paint all the wood trim a white or off white. If it's only the cabinet, I might be tempted to use a deep blue that matches the deep blue tile trim. I'm hoping others will have good suggestions for wall colors. I'd probably use a pale gray, but white, off white, or very pale blue might work too (and others might have suggestions of bolder colors to add to the mix?). If they are still functional, I'd keep the matching blue sink and toilet, even though that shade of blue can be a bit overwhelming. But I'd get a much simpler framed mirror and an updated light fixture. I'd probably use the dark blue tile as an accent color for towels, mixed with whatever color you choose for the walls.

Thanks Feeny. The floor is rubber tile and needs to go. I'm thinking of maybe white penny tile with blue accents???? There is no painted wood in the room. I was thinking of taking the door off the built in cabinet and adding shelves.

I think a bold stripe wallpaper with two shades of blue would give the room height and not feel like it is cut in half. New large mirror with sconces on the side would be nice and I would remove door and do glass shelves. Good luck!

Hi Robin -- I love the cobalt blue. I did a quick search looking for a wallpaper something like this, one of my graphic designs for tee shirts, but couldn't find what I had in mind.
http://www.cafepress.com/+ringer_t,449143027
But while I was looking, I had perhaps a better thought; how about maps?

Hi Robin,
Here are a few inspirational photos for you. Unfortunately the retro tile ones aren't blue, but they give a sense of how fabulous vintage-style tile designs can look:


And then this next one has a multi-colored retro blue floor that might work for you, though I'd also be tempted by the simpler white with some deep blue accents that you are considering:

I'm not a big fan of wallpaper, but I admit that with that big expanse of blue in your tile, it is tempting to get something with a pattern onto the walls.
And I agree with Marie Meko that taking off the door to the cabinet and putting in glass shelves would be great.

I am envious that you still have the original tile and fixtures. We have a house from the 1920's, and many similar houses in our neighborhood have the original tile, but someone renovated ours in the 1980's (not a good decorating decade, IMO), so I've always mourned the loss of the original tile features in our house.