Are you updating tiles on walls/floor and removing wallpaper? If yes, start by removing tiles from walls and floors so they can remove the tub, etc. Most likely they will remove everything around the tub and install a new hardi-backer for the tiles and change/move the diverter for the tub and center it with the new tub.

I think this is basically a complete do-over. The round window is charming, so I'd probably go in a traditional direction. Turn the vanity into a double and put a mirror on the full wall, with a custom cut out for the window. If this isn't the only tub in the house, I'd consider going with a shower, only. Some inspiration:

Inverness Kitchen · More Info

Traditional Bathroom · More Info

ETA: If you can remove the soffit over the sink, do so.

Thank you for the advice! Yes, I will go ahead and remove all the tile and wallpaper. Still undecided if i should add the tile wall back around the bathroom or just drywall with vinyl wallpaper...

I like those two inspiration pictures. it is the only bathtub in the house so we do want to keep it. I will see if we can remove the soffit, that would open it up a lot. Thank you!

Someone will buy those great original swags! The tile may be valuable as well. If there is a local salvage place, ask them if they would be interested, and see if you can't keep some of it out of the landfill. Lots of retro enthusiasts on the MCM Baths and Kitchens group on Facebook.