I agree that there definitely looks like some grout/tile failure in there to me, but I am not an expert. Pictures can be deceiving, but if that is the case, I'd be nervous about water damage in the wall behind the tile and I wouldn't advise leaving it longer and let it get worse. That tub is really awkwardly placed. The designer must have never intended it to be used as a shower. I would advise ripping out the existing tub, tile and half wall and repairing any water damage. If you want to keep a tub/shower in the same place, remove the window altogether and do a full wall to create the alcove. If you don't want to get rid of the window, you can replace with glass block which would allow the full wall to bisect the window. You can also do shower only in the corner, which would necessitate moving the plumbing. If those ideas seems too daunting/expensive now, then just bring in a pro to see what repair work can be done on the existing tile to prevent further damage, do some redecorating (cheap, easy things like paint, faucets, and hardware can make big differences in appearance), and keep saving until the bigger work is more feasible.

Hiring out a professional is not an option. Like I said above, I am on a tight budget. I assume previous owners used a curtain. I just purchased/closed on the house yesterday. I agree that the grout does not look right, the tiles definitely need regrouted.

I have 2 small children, keeping just the curtain is not an option. Water will end up everywhere once they push the curtain outside of the tub. I would really like to be able to have a shower door in place. Replacing tub entirely is not an option. Removing window is not an option. It is a smaller bathroom, no room for an additional shower. I plan to redo bathroom entirely in a few years, but I need to make it work for right now.

Can I just board up the window and build up of the halfway then tile it? If I redid the grout on the tile, can I paint the tile? I really dislike the current color of the tile, but removing it entirely is not an option. Thanks!

If I was able to add a tub surround kit to the existing tub, how would that work with the window being right there? Do I add the kit and leave the window as is. Board up window and then add the kit?

gee I think you might regret rushing this due to budget. Boarding a window needs to be done properly to avoid leaks and mold and losing windows is usually a last resort and often hinders curb appeal. You just moved in and it is usually advised to wait a year before making any big changes to kitchens and bathes because if you live in it for that amount of time you can really figure out what does, doesn't and will work. It also gives you time to save enough to do it right.

I am posting pics of my kid's bath that has functioned acceptably for over 90 years small kids and all. I found using two curtains instead of one has kept my floors and adjacent toilet free of water after my small kids bath or shower. maybe try this untill a budget exists to fix it properly.

Rorah, you do have a point. My main concern is just water getting everywhere on the floor, because my kids always take the curtains out of the tub when taking a bath. I will consider the double curtain and just fixing grout on tile and possibly painting them until I can do a bathroom gut.

Yes, the house was inspected and the bathroom passed the inspection and appraisal. No water damage was noted.