You could hire a carpenter to add wood trim the areas where the vinyl won't work and then just paint that trim semi gloss.

Exterior or elastomeric paints are not necessary in this interior environment. The area should be treated more as a bath or kitchen area, using a high quality interior paint.

Commercial grade wall coverings would be OK in such an environment. These are very heavy vinyl on fabric and are usually sold in 54 inch widths. I would seal the walls first with an oil based primer. these products are normally hung with heavy bodied, pre-mixed "clay" paste.

Do you see "commercial grade" wall paper around swimming pools? NO? Well there is a reason for this, any paste used to hold the paper is water activated. Meaning all the seams will open up if in a wet environment.

I am not talking about "wallpaper". Commercial grade wallcoverings are almost like hanging vinyl sheeting. With 54inch widths, there are a minimum of seams. It is absolutely water impermeable. They are always backed by a heavy fabric, not mere paper. That they are not seen in pool areas is more a factor or cost. Such coverings are many times the cost of paint or mere wallpaper. Often, where moisture is anticipated, the bottom seam will be sealed with a small bead of clear caulk.

Looks like there will be a workaround for getting vinyl sheeting on there, including removing drywall and replacing it with G1S plywood (the vinyl installer doesn't want green board) and using a special trim for the rounded drywall corners, and adding PVC casing to the deep window sill. Won't be cheap or quick, but cheaper than tile.

quote" It is absolutely water impermeable". This I will just have to disagree with. I have worked with all types of wall coverings in 30 years and the seams will always be water permeable .As you said sealing the top and bottom would help, but.