Hello JHawks, When considering installing a bathroom in a basement we all have to remember that four letter word, Mold. Any organic material such as wood, sheetrock,(regardless of color)or some insulations should not be installed in any wet areas. One thing you dont mention is if there is any water penetration from the block foundation or any signs of "efflorecense" , a white powder kind of like salt on the wall. If any of this is apparent on the wall nothing will stay adhered to it, even if you pait it. If it is okay in this area then screwing a tile backerboard or cement board to the wall will probably work out better in this situation. And always vent a shower fan to the exterior of the building to remove any moisture.