Do you have wainscoting in the rest of your home? I do not like the backsplash on the sides if the vanity and the lighting is just plain awful and very dated. But what is the budget I love PR you can go crazy with wallpaper that you would never use anywhere else but in PR it is perfect but I nned more info and a to scale floor plan is also a great help. I would start by removing the wall between the toilet and the vanity since only one person is in thta space at a time why not make it feel more open. I do not like hand towesl that other people use so in PR I do disposibles in a nice tray , IMO you do not need much storgae in s PR so a simpler vanity would be nice but you meed to share more info as to your style and budget.

I’m open to wallpaper. The only other room that has wainscoting is in the guestroom. I would prefer not to go over 2k.

It's a small space so I am not sure I would do wainscoting - I think wallpaper would be fabulous, check out online sites to see what papers you like.

For me the priority would be to fix the lighting - I would do that first and see how much of my budget that eats up (it might be complicated with the drywall) Once that is done, I would get an updated faucet and do the wallpaper. I would go dark and bold in here and have some fun (I would likely just paint the vanity to jibe with the paper, )

Can you raise the dropped ceiling over the sink? And change the light fixture? Fluorescent lighting is the last thing you want in a powder room….it gives faces an unnatural light. The sink area is tight, but no one will be doing much more than washing and drying their hands, and maybe touching up their hair or makeup. A powder room is a good place to add some special wallpaper or a pretty paint color. All you need is a toilet, a sink with a cabinet to hold some supplies, hand soap, a box of tissue and a small trash receptacle. The sink material should match the toilet material in color. I also like to hang a piece of art under glass in the powder room. If there is no exhaust vent, you may want to add one. Our powder room is located in the corner of the living room, near the front door, and the exhaust vent turns on when the light switch is activated…that slight sound also muffles other sounds which are common to bathrooms.

I can raise the drop ceiling as I would say that is a necessity along with changing light fixture.

The vanity cabinet, top and faucet look pretty old. If you can afford to replace them and also change the lighting you could then just paint the room and it would look 100% better. Do a search on powder room pictures on Houzz to get some ideas.