Yes, Its totally worth it, its a bit more but a big impact.

You have 4 baths - master & guest on first with 9’ ceilings & 2 on 2nd with 8’? And, you’re tiling the 9’ baths to ceilings but not the 8’? What I think is that in one year you’ll be looking at the bath with small reveal & less tile & either thinking about painting & regretting the extra work to paint that small area nicely or, about that kid who uses that bathroom & how tall that kid will grow to & splash water everywhere & wish that you’d found a way to squeeze out the $650. The $650 seems like so much now but next year when the dust settles….not so much $ to,have done it!

1 year later after moving in our new home build these types of things are or would have been my only regrets.  It seems like a lot of money at the time but trust me it's so worth it in the long run. It's your forever home, you'll forever look at those blank spaces thinking I should have just paid the extra.
Or maybe it doesn't bother you at all and you can pocket it for something else. For reference we tiled our master bath to the ceiling and upstairs kids bath is just a basic tub/shower insert. I do not regret it at all. However, if I did want it tiled I would go to the ceiling. All or nothing, but it will look great no matter what.

Are you saying that tiling that small space is going to cost $650 more?! That seems crazy $$. I do think I'd tile to the ceiling; the elimination of worries about mold or mildew on the painted section would be worth it to me.

Bring the ceiling above the tub down to the top of the tile.

Does it help sustaining the bathroom drywalls from leaks, mold? Or is it just esthetics?

Chances are the only time you'll have water on the walls near the ceiling is when you're cleaning the tile up there. Tile and grout aren't waterproof so these tiled walls are only as waterproof as the waterproofing system under them. I wish I could say tile will help prevent mold but I've got mold at the ceiling line in my 8ft wall tiled shower (appeared after 15 years but still...). Aesthetically, yes, I prefer tile to the ceiling. The shower looks more spacious. A high ceiling feels more spacious to me as well so I'm not a fan of bringing a shower ceiling down as Mark Bischak suggests.

My preference would be to tile to the ceiling, both for looks and for ease in cleaning. I like to squeegee the tiles after every shower, and it just seems like it would be easier to keep the shower clean if it's all the same material. (Plus, my family is tall and I feel like we splash water frickin' everywhere -- over the glass door, up high in the shower, etc. I'd feel like I'd have to dry off the painted part after each shower.)

As others have posted, I am curious as to why tiling an additional foot in a shower would cost $650.

In my experience, there is minimal extra cost involved when the labor is already doing the job. It is one of the reason why it is not less expensive to redo a small bathroom versus a very large one since the labor involved doesn't have significantly more to do with a slightly larger area and the cost of even the most expensive tiles wouldn't add that much to the cost.

In terms of spending money on my remodel I never regretted spending money for those items which would be difficult to change down the line. In your case, the difference - even if subliminal - would register as a down scale bathroom. To me, not having tile to the ceiling looks somewhat like an inexpensive "insert" type of shower or tub/shower combination.