What a cool bathroom. I'd paint the walls white and replace that fussy vanity cabinet and leave the rest alone.

The rubbery stuff is probably caulk that someone used to patch and repair grout. As for the part around the tub faucet and diverter, you can salvage tiles from behind the vanity or toilet tank.

If nothing is leaking and there is nothing failing I would spend my money on cleaning out and replacing the grout, which is labor intensive and not cheap, but not $40K. Or once the caulk is removed, maybe the grout can be cleaned and that's it.

The removal of the plaster would be cheaper because they would just come in and bash everything apart, usually, actually carefully taking the tile down to preserve plaster would be more expensive.

That is a gorgeous bathroom. It would be great with an updated more "deco" vanity and mirror. But I understand that sometimes they are just too far gone to save. But you can remove the caulk and grout and regrout yourself if that's all it needs. If you take the tile off then yes the walls will need to come down as they are probably mud and chicken wire and they are terrible to demo. You need access to the plumbing as there are usually issues behind the wall. here is my 1950's bathroom before, during and after renovation. I sort of liked the pink, but there were leaks and multiple patches to the tile so it had to go. I had two baths done in the same way about 5 years ago in newEngland and the total cost was ~$35k and that included a new waste stack as the old cost iron from 1920 was cracked.

Thanks all-I appreciate your input.