I would do exactly what krissie suggested. Consider replacing the window with a clerestory window. In which case, you might want to postpone the exterior trim & paint until after a new window has been installed.

Yes, I am inclined to wait since the bathroom will be gutted eventually, but DH uses that shower daily and I'm not sure he will be okay with a curtain, especially if we wait more than a year for the renovation. I read online that a sheet of plexiglass cut to fit the window opening can do a good job of keeping water out and is fairly unobtrusive - maybe we'll try that.

A clerestory window would be lovely but our exterior is stucco, so I don't want to change the shape/size of the window opening unless absolutely necessary. The exterior trim needs to be done this summer because we are trying to prevent a return of carpenter bees (exterminator has treated the holes and recommends filling them and repainting all wood no later than fall to prevent reinfestation). I would hate to have to redo the exterior trim in a couple of years when we redo the bathroom, but I'd also hate to have to redo the tile surrounding the window now only to have to redo it again when the full bath gets done. Argh.

A clerestory window would be lovely but our exterior is stucco, so I don't want to change the shape/size of the window opening unless absolutely necessary.... Turns out, the window in the shower has been leaking water onto the exterior trim for quite some time

With a window in a shower that has been leaking water 'for some time', expect more than the just trim to be rotten. Expect to replace some framing which will necessitate stucco repairs.

See how the tile has raised up on the window sill and the big gap under the sill tiles? That is a good indicator that you have more substantial repairs to be done beyond replacing a window.

Yeah, you will discover considerably more rot and water damage then you anticipate looking at the condition of the tile

I lived in an ancient house with the window-in-the-shower. We put a plastic curtain over the window. No water problems whatsoever. It's a $3 fix. :)

Thanks everyone for your input. I am sure you are all correct about there being water damage inside the wall - I was just hoping we could address that by replacing the window but without completely gutting the bathroom right now. Would replacing the window allow enough access to the wall to repair any underlying damage without compromising all of the surrounding tile? Or is this one of those situations where you can't know what's going on until you fully open things up?

You may get fortunate but doubtful. You will end up gutting the interior and quite possibly tearing off quite a bit of siding to get to thee sheathing which will more than likely be water damaged and in various stages of rot. You can selectively start to demo but remember that once you start and find the damage you really need to keep going at that point. And unfortunately there is no real way of knowing until you get in there,

Do you have your plan for your gut remodel?

I am just guessing here, but I wonder, if you do, if you can't hire your contractor and have him do just this wall now.

I have lived in old houses that had windows in the shower - they all were clerestory style, high enough to pretty much minimize water hitting the sills but I still could look out.

Unfortunately, we don't have a plan for the remodel in place yet, because we weren't planning to do it until next year at the earliest. Aside from the window, that bathroom is in decent shape. However, it is a small room and the remodel should be straightforward since we wouldn't be moving any plumbing or changing the layout - just a rip out and replace. The budget is more of a concern, LOL. The other issue is having workers in the house during COVID - this is why we were planning to deal with the exterior trim this summer and wait on any interior work. I ordered a curtain for the window, so hopefully that will buy us some time to figure out what to do. I may just have the exterior carpenter skip that window so we don't waste money, then replace that trim when we are able to do the whole bathroom.