I can't help with the technical issues you're asking about but we did something semi-similar on the walls....two rows of 13" travertine-look porcelain, (real) travertine pencil rail, 4x4 tumbled travertine, two rows of glass tiles capped off by a travertine chair rail. I like how DH defined the decorative elements, top and bottom, with the pencil rail on bottom and the chair rail on top. We tried it without the pencil rail on bottom and it just looked undone to us.
Monica

Here is a link that might be useful: Bathroom Wall

Thank you, Monica!
Very very elegant look, this is something similar I am going for.
Do you know if you have cement board under and if you do is it whole wall or just under tile?

Linda, thank you! I don't think there is cement board behind the tile. There is around the tub area and vanity backsplash but I'm fairly certain it's just sheetrock elsewhere. I'll ask my husband later tonight.
Monica

Started tearing wallpaper down, as usual more work than expected ;)
anyway, decided to copycat your top chair rail- looks fabulous

Linda: The main reason you use cement board instead of drywall behind tile is that cement board doesn't disintegrate when it's wet like drywall does. But that applies in showers, not so much for walls, especially if you're talking about a powder room, not full bathroom where it's highly unlikely you'd get enough water splashing around that it would soak through the grout into the wall. So you don't need to add cement board to the wall before you tile.

As far as tiling over the plaster is concerned, you might want to check out the following thread. Might put a monkey wrench onto the works, but at the same time, might save you alot of wasted money:

Here is a link that might be useful: JLC Forums