I have a house with this kind of window. It's a rental house where I provide window coverings. I have always hung rods with the top of the valance touching the ceiling. I have scalloped ones up now but I am at a loss for what you have in mind. My window is so wide that things looked out of balance hanging from the top of the window frame. I think I have 9 scallops across the width.

About your lining, if all else fails, I use muslin. I am particular about what shows through to the outside & since my trim is off white, I use off white linings. Where I have had white trim, I use white. I learned to be picky living in government housing decades ago when they stipulated how the front of your house WOULD look.