The grout lines are a matter of personal taste as far as the aesthetics go. As long as you know that if you get really small you will have to switch to an unsanded grout. But I dont think your going to go that small (1/8th)
The layout is personal taste too. Really just depends on what you think will look the best. And actually you can combine the two. Maybe do a square layout on the bottom. Say 4 courses. Then do a feature strip of your stone pebbles a few inches wide. Above that you could switch to a diagonal layout. I did two showers like that a while back and they looked really good. (They were 12x12 tiles too)
Just a suggestion.
As far as the floor goes I would personally go with 1/4".