You could just leave the wallpaper & add a larger mirror for the room. Paint will make the room look more plain. Not a good look. Replace the art over the toilet with a complementary color.

One shade lighter than the laminate top. Or spring for some splashy wallpaper if the exhaust fan works well.

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pulling down the wallpaper and painting the walls a plain gray isn't going to do anything about the other issues:

the white mirror should be replaced as it looks very 'cheap' and also very 90's. just do a plain beveled mirror.

the faucet is also pretty bad. you could replace that w/something very simple and less bulky.

The cream colored switch plate covers are doing nothing to help. replace those in gray (lowes, home depot have them) or get the wood ones you can paint the same color as the wall).

While you're at it, pick up a few new handles for the vanity. something in a satin nickel would look 10X better than whats on there now. These handles are very period appropriate to your bathroom. notice this cool wallpaper too.

Can you find a remnant countertop? if you could swing a carrara marble one (100 bucks) that would look beautiful w/the pink/gray tile. (below pic)

or paint it like this one . http://adaesthetic.com/spray-painted-bathroom-counter/

I like Beverlys mirror and art ideas. the duck pictures don't work and are hung too high.

and lastly, the curtain. If you want to keep w/the mid century tone, do something a little more modern like a shade or blind of some sort.

this one has the gray paint but used a lot of black accents.

Hello. Definitely pale gray will perfectly look.

Thank you, All! These are GREAT suggestions!