Before you decide what to do about your bathroom walls, you need to consider the condition of the drywall.
You don't want to put anything on top of drywall that has been rotting due to moisture collecting over the years.
If you need to replace your walls, then use "green board" bathroom wall panels, which are a moisture-resistant kind of drywall.
In extremely wet areas like showers and baths, use moisture-proof backerboard.
When you're sure your drywall is in good shape, then you can consider some bathroom paint alternatives.
Keep in mind that bathrooms will have issues with moisture, no matter what type of remodel you are considering.
Should you decide to go with wallpaper instead of paint, go with the thicker, vinyl-coated paper made just for bathrooms.
This will give you years more useful life before it needs replacement.
There is a large variety of colors and designs from which to choose.
A wallpaper with stripes will make your room look taller, and will draw your attention to the ceiling.
This is just what you want if you have a skylight in the bathroom (which is a very popular trend in 2010).
Another trendy idea is to use antique bath fixtures, and old-style tubs.
In this case, a flowered paper would look good.
Many people use tile in their bathrooms, but not all the way up the wall - that gives it an institutional look.
Tiling about 36" high is about right.
Then the rest of the wall could be painted or papered.
A wall with tiling halfway up might look nice with some stenciling done on the upper wall.
Bathroom murals could also be used.
If your family has a special hobby, like horses, hunting, boating, hiking...
appropriate designs to use should be easy enough to find.
Instead of tile, you could install tileboard, but that's not recommended for most family bathrooms.
It doesn't take long before it begins to look "fake".
But it does work for a guest bathroom.
You can put it on the lower half of the wall, with the upper half being wallpapered or painted.