Thanks for the input. The other obstacle with continuing down the side on that wall is that I will almost certainly have to stop at the edge on the opposite wall. The reason being that the cove is only SLIGHTLY larger than the tub on that side. Literally it is 1/2 inch to the framing and If you add the drywall it is 1", not enough to get a cut piece of bullnose in. So, thats why I was thinking just stop tile on both sides at tub's edge. If I do exten on the wall in the first pic as you guys suggest, it will not be symmetrical with the other side where i have to stop at the edge. SHould I still do it do you think?
ALso, I should mention that building out that wall is not an option because of a doorway.