The particle board must come out for tile. You saw what happens if it gets wet. The thinset moisture could cause it to swell as well, and you'd just ruin the tile quickly. Get a little water sloshed out of the shower, and that would end it.
Stone tile requires TWO layers of plywood. Before you do either thing, you must determine if the subfloor is strong enough to support stone. It must meet the deflection standard of L/720 which is twice as strong as for ceramic tile. 1/4" plywood is almost never considered structural, so it won't do - 3/8" minimum for a second layer and more may be called for. Don't worry about trying to match heights that much, a proper transition is fairly common and works. You can make it out of wood to match the existing hardwoods. To minimize buildup in the floor height, you can use a decoupling membrane rather than cbu - you'd end up at about 1/8" for one of them vs the 1/4", if that is important to you. Check out www.johnbridge.com for tiling questions.





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