Couple of pics would help. As for " keep the smaller window, frost it and have the builder remove the inside trim then completely drywall over the window keeping the look of the window outside but losing it inside? Will it look half ass and dickie?" Yes.

I wouldn't drywall over the window. Take a look at the options for recycled brick, they may match better than you think.

What is the recommended measurement between wall mounted taps and our vanity top which has the basins undermounted??

In my experience Moewaka, it is usually more economic to keep as much of the existing as you can and add on what you need. Some things do depend on the level of finish you want to achieve too. We have done a number of Alteration and New Build projects, so feel free to contact if you would like further help www.gtarc.co.nz