I'd run it from the top of the granite strip up to the bottom of the wall cabinets and keep it that height throughout.

Yes, before installing a new backsplash remove the 4" piece. Look how it already chops up the area under the cabinets.

The tiles you pictured above will look really busy even though they technically match the counter. Look for a simpler pattern or just a subway tile.

You certainly don't need to go up to the ceiling. Stop about 2/3 of the way to the top of the window.

Be sure to finish any tile edges with a pencil tile. The tiles that stop somewhere in the middle of the window.

You are getting good advice. Follow it. Remove the small backsplash you currently have and just do the lower part to the cabinets. Otherwise it will be much to busy and it will be like wearing too much jewelry, never mind how expensive it would be and not look good.

I agree with others that say remove the counter back splash piece if possible. As far as the back splash, I suggest keeping the height at the base of the bottom cabinets. Those particular back splash colors are too much to carry up the wall and would look too busy. Unless you're set on this particular back splash, I would recommend a style that has colors no darker than your base cabinet to keep it looking fresh and cohesive.

Since your window doesn't start where the cabinets end then you'll be fine to end the tile at the bottom of the cabinets. That will capture the lower few inches of the window frame in the tile.