Met with a contractor (family friend) today and he is going to frame and drywall the modification and also install the pocket door. I ripped down the drywall and some of the studs in the closets. Never knew the bathroom ceiling was only 7' in that house until I got the outside drywall off.

I stopped when I hit more framing that I expected and I'm not sure what it is holding up - so I will let him figure it out.
We changed the "wall inside a wall" next to the pocket door to normal 2x4 framing. Should be plenty of support for tile and a grab bar. I'm also going to keep the plumbing on that wall
Will probably wire an extra light while everything is open. Never had a exhaust fan, and I don't want to deal with venting out the roof right now. That can wait until the roof needs to be done.
Unless someone can convince me it is a horrible idea, I'm going to run the drain into the 3" cleanout of the soil stack. Knowing how fast my tub can go from free flowing to 4" of water backed up, I don't want to deal with a flooded bathroom due to undersized pipes.
A few things I didn't think about at first that might help others.
- Get a "Bagster" from HD or Lowes before you start. We have already filled two, but much of that was carpet torn out of the rest of the house.
- A wheelbarrow or other cart is necessary to move stuff.
- Gloves. Lots of Gloves. I use the dollar store leather/canvas ones and they work fine, even though they don't last long.