I think the color is rather neutral. I'd sort of just "ignore it" and see it as a background texture. I'd use towels and shower curtain ( if you have one) in a similar tone. Maybe hang up some black and white, or sepia photos in matted white frames, that could give the place a more contemporary look.

If you can't ignore it, embrace it. Go full retro. Ruffles, polka dots, etc. Check out the old Good Housekeeping ads from the 60s for inspiration.

I would say yes, embrace what you've got, but just don't overdo it. What you've got is daisies. Not bold, mod, bright colored daisies, but regular old white and yellow daisies, which tend towards 70's country more than mod, and some accent color that looks like gray in the picture but could be light blue or sage green. So I'd decorate with some solid colors (white, yellow, or that third color) and accent with some things with a daisy motif.

There have been some excellent examples of how people have dealt with this problem on the site in the past. Anyone know any of their links?

In order to get some ideas for how to embrace the tiles, I would suggest looking at some of the Etsy studio home tour videos. One thing I have seen that I think can walk the line between kitch and modern nicely is to take kitchy figurines and paint them a bright, fresh solid color. Let the tiles be the pattern, and accent with solids. It looks like those flowers have orange centers, so some pops of bold, solid orange could make a nice modern contrast. You could play with that and a totally complimentary color.

Don't you have more pics? No one can give you a good assertion by just looking at a sink.

Do the tiles surround the whole bathroom, are there mouldings, what does the rest of whatever you have in your bath looks like, curtain or door, windows, lighting.....

I don't think you're just changing a faucet, so it would be logical and wise to show more, or at least a better description so there would be some sense in what people trying to advice you to do.

And please, please people... STOP referring to your livings spaces with the derogatory term, yes, derogatory, "RENTAL". This "rental" will be (I expect) your home for a while... start treating it with respect!

I don't see anything campy or kitschy about the tile - its definitely dated, but I agree with others that you should just treat it as a neutral. Don't go with any cutesy fabrics in this space (eyelet and/or regular lace, ruffles) or it'll look like a Holly Hobby themed space! Stick with "crisp" and tailored linens in matching neutral colors (pale yellow and taupe - avoid white) and the tiles will just fade into the background.

http://www.restorationhardware.com/rh/catalog/product/product.jsp?productId=prod310149&navAction=jump&navCount=2

If you paint everything that you can paint black, these will look great. Black shower curtain, cabinets, door, ceiling. Trust me!

Gaidig got it right. I'd have written exactly the same post. Good going!

Yellow and grey are actually quite hot right now and rather than go kitsch, you could go contemporary. Using the tile colors and flowers as design cues, here are some ideas:
Crate and Barrel shower curtain
CB2 cabinet
CB2 towels
Chiasso shower curtain
You'll be able to achieve a lot by honing in on the fine details - like getting a pretty ceramic wall plate for the outlet, a nice cup or soap holder, etc.

I had that exact tile board in my guest bathroom. I went with a cream waffle style shower curtain, painted the walls a creamy biege and used very simple yellow/orange accessories. As soon as I was able to rip it out, I did. The only part that I kept was in the space above the shower, which I painted the same color as the shower and it blends in well.

I'd definitely go for a daisy-look!

Check ebay for "vintage vera" (Vera Neuman) towels and maybe a sheet for a shower curtain. It's the same era, but more urbane than most daisy 70s patterns.

I mean, that medicine cabinet's squickily old-fashioned, too. It's not even fun-kitsch, it's like irony-free bad 80s country-cupboard style.

So pick colors you love and can live with for the linens. Don't let the unfixable fixtures decide for you.

And here's a thought: treat it like a diner bathroom if you'd like to inject kitsch.

Go to ebay or etsy, and buy some old "men's magazines." Not Playboy (unless you're okay with it; I think old pinups are completely adorable), but men's mags like "Man's Life" or "Stag" from the 1950s and 60s that have cover articles with titles like "I Survived a Giant Otter Attack!" and "The Red Plan to Conquer America!" and "Man-Hungry Hussy of She-Devil Island!"

Frame them. Pick covers, or story pages, or full-page images, or even advertisements. Whatever makes you chuckle to yourself. Hang 8-14 in your bathroom. En masse. Everyone will love it, and no one will notice the tiles.

Easy have them reglazed to a solid white or whatever color.