Great! Next problem is going to be once you put new wallboard up(or green board or whatever you choose to use..), you're not going to be able to put on a new piece of corner bead as it is. You may be able to trim a piece to fit in behind the wall with the tile & finish the edge with mud, or your local supply house may have another style of corner bead that fits that transition. Hopefully someone with more finish work expertise can give you some suggestions here. If not, you may have to start a new thread with that specific question..
We get some water that comes out of the tub if the curtain is not perfectly in place. And with two little kids splashing in the tub, this area can get wet.
As I see it, and in no particular order, my to do list includes
removing rust from radiator and painting it.
add some green board below the tile. as is, that area looks really ugly.
repairing drywall section above radiator.
doing all that I can to ensure this area remains dry.