What type of tile should I install in a bath/shower surround?
If your tile is not secure, then the backer is not secure either. You will need to gut it to the studs and install water proof membrane, concrete board or heavy hardy-backer to tile over. The window frame must also be carefully water-proofed as well and trimmed out with a moisture resistant material. Get some professional advise on this one, a new tile job is not cheap or easy and be a shame to have a leaky, grout dropping job when you're done.

As far as the type of tile, ceramic or porcelain are similar products, difference being the hardness grade and the type of glazing. Porcelain is always a better choice in my view as the surface glaze is smoother, easier to keep clean and usually a harder grade.(3 to 7) prices can vary wildly, usually again because of the glazing and hardness factors. Designer patterns also effect the cost as well.