I have a regular size in window in my tub/shower. Some contractors recommend tiling the window surround, one recommends lining the surround with PVC trim. He said this creates a cleaner line. I'm so confused. What is the recommended practice?

They are both right. Sort of,

Anytime you have a window in a bathroom shower/tub area it should be constructed of material that will not decay, or allow water to leak into the wall cavity.

The window that is installed in this area should be first off safety glass material. You can tell if it is by the label etched into the glass in the corner. If its not safety glass. Take it out and use the right one.

When installing this window a plastic or metal pan should be installed on the bottom of the window to prevent any water that can leak into the frame area and devert it to the outside of the home. If fact that is a good prectice on all windows.

If you your using a solid vinyl window with welded seams on the corners not as important but still should be used anyway.

The plastic PVC trim suggested is a cheeper way out of doing the job correct. PVC trim will work but requires occasional painting as it will eventually peel. But if you like the look of a trimmed window Vinyl will work well. All seams with this material must be glued with the proper material suggested by the manufacture of the trim. All joints must be moisture poof.

Tile also is a good way of doing this. But tile is porous and water can seep through the grout seams. If your going to use tile as the trim, you should be using a water proofing material such as Kirdi onthe wall to prevent any leaks from getting into the wall cavity. Once the tile is on and the grout dry. Seal it. This will help prevent moisture from leaking through.
You must stay on top of the grout with this method. If its cracking it must be fixed to prevent water enty behind the tiles.

We use cut marble for our windows. We use a high quality silicon sealer on the joints and to glue it to the wall. We use a vinyl window as well so if any water does get into the window area, it will not decay the window itself.

Hope this helps.