Johnson And Bull

With it being a single skin brick usually on a garage, i would say that by plaster boarding you would end up with damp, so the walls will need to be tanked before any sort of plaster or render work could happen.
also a garage door allows for a lot of free movement for air and therefor damp, bricking up would massively slow this process so ventilation would need to be added or again you will get a lot of damp.
for flooring, you are better of just getting a floor paint or tiling because of the same moisture issues.

It all depends really, are they a completely different tile? will they be a different colour/style? if the cost of the new tiles isn't too high then maybe buy a pack or order some samples if possible to hold above the existing, or have someone else hold them above so you can stand back and view yourself... see if there are google images that you can find.
ultimately its your bathroom, people will always question why someone has done something in their home with regards to styling ideas or layouts, but at the end of the day, it's an extension of you and what you like, if anyone asked why have you done that, you say because it's your home and you wanted to.... case closed!

That is a bizarre case, as that is something that usually tends to happen from damp.
however, the case can also be, if the walls have been freshly plastered, painting over when it hasn't fully cured would release moisture and residual chemicals in tiny amounts into the paint and it would have the same effect.
or, again if plastered, the result of the plaster being so smooth, the paint can't actually bond to it, it has no, what builders refer to as a key, the same thing would happen if you painted glass.
i would suggest putting on a mask, rubbing down the walls to remove the paint, as you can't paint over something that isn't sticking.
you can either make a key on the wall using the sand paper, the same as when you paint gloss, get rid of the smooth surface, or use a primer.
paint isn't particularly harmful in toxicity, however, breathing any dust of any type isn't good for your breathing system.

All councils can be different with regards to their allowance and wiggle room, it may be worth a call to speak to a human ( rare i know), but i've built a log cabin in a garden near hear that was a living space and it was completely legal due to it being a single story and essentially a big shed, therefore a temporary building so to speak.

It's fairly simple to achieve, you just need your brickwork to be sound in order to match up to the existing above, essentially the building above from what you say is lintels rested on corner pillars?
you will still need a cavity in the walls and the correct air bricks to keep moisture out, and allow air to pass under the floor. as for price that's not something i can tell you off the top of my head, i don't know the area you live, materials and labour prices vary a bit across the country.