Long story short - the people who finished the basement bathroom did so without a permit, and they made full use of the fact that their work wasn't about to be inspected or subject to building codes. I started this project as painting the walls, and since then I've learned that this room needs a lot more attention. The shower tiles are attached to drywall and the faucet was sealed with some putty smeared only on the top. The floor is raised 12" off the concrete, just to allow pipes to run above the concrete. This puts the ceiling of the shower about 3 inches over my head, and that ceiling is made out of drywall also. Additionally, there is no vent, so from the moisture - it's cracking.
The rest of the finished basement is only raised 5 inches, the bathroom is raised 12. I want to bring the bathroom to level with the rest of the basement. I cut away the hallway wall so I could see what I was working with: (Click for full size)
I figure that means I'll need to lower that main pipe you see running through both pictures. I can probably just grind a 1-2" deep channel in the cement, grind down some extra for the shower p-trap, and then built the floor around the pipe. Is that fine to do? Are there other things I need to consider? This is where it all connects to the main sewer line, which is under the concrete: