I'd be tempted to talk to a couple of those that have had their houses tiled.
I had one of my house's in Spain tiled up to about the four feet you mentioned, a chap was doing another villa up the road a bit, asked him how much, decent price all in, looked good, so he did mine.
The outside walls he did were all good, no flaky paint, no damp or mould, no damage to the walls inside or out, I had it done purely for cosmetic reasons... Done right with the correct colour tiles it looked good and I had a few comments on how nice it looked afterwards, have to say it did stop a lot of rain splashing dust marks up the lower parts of the walls because a quick mop round and back to good again.
If the walls in mind are in anyway damp or badly damaged then it's obvious this has to be fixed and the problem cured before you tile, nearly every villa in Spain is painted white and nearly everyone who paints them white has done so with the white paint you buy from DIY stores in Spain, and if you read the makeup of this paint on the pot you buy you will see this white stuff has a plasticiser in it so painting the walls with this paint wont cause damp, if anything it should stop a small amount of damp coming through from the outside, and of course it goes to say you wouldn't paint a damp wall anyway.
The house I had done with tiles still looks good to this day, about ten years after I had it done and as far as I am aware the house has had no problems with damp coming through.