Yes remove all the wet wall board before mold starts growing. Might not hurt if you sprayed a bleack solution on the walls after you remove the damp stuff just to make sure mold is gone. It all depends on what you want to place on the wall. If it is tile, then a 1/2" concrete backer board is necessary. If you decide on a surround,perhaps a green board rock will be sufficient. Decide what you want for the wall and then check with your local supplier for the best solution.

What's better is to make the whole room waterproof, no curb on the shower, and slope the rest of the floor towards the shower drain. The "toilet in the shower" is really annoying to live with. A curbless shower, on the other hand, is still just a shower - all the ones I've seen still had the regular outlet at the sink even though the sink was in the waterproofed area. Of course, it ultimately comes down to how your AHJ defines "shower area".. if there's a shower curtain and the toilet/sink area is out of the "spray zone" you ought to be OK. I'd check with your local inspector first though.

I saw your posts on Tile Geeks, GTP, etc. I’m glad that you are undertaking this experiment. It’s valuable information for homeowners and Pro’s alike. Please post the photos directly here, in your post, rather than linking to a blog. Houzz tends to view posts designed to generate traffic for another website as spammy. This information is too important to be vanish as spam.

You have three posts on the same topic. All would be better posted on the PRO page, as one post.