We have an old home that has a window in the shower and actually kind of like it. What we did to protect from water damage is to first see the woodwork with a sealer and then caulk all the edges. to cover the window we installed a vinl (won't rust) blind and then created a curtain shade by installing a window curtain rod (the cheap bar kind) above the tile and using it as a curtain rod for a shower curtain we hung from it. We just bought a regular sized clear shower curtain liner and trimmed it to size. We also got a clear one since we have the blinds and don't need privacy and then we can see if any water does get behind it, although none has.