Oh, Isn't it Pretty?
Turns out the beadboard actually reaches to more like 9 feet, leaving a gap of 1 foot between it and the ceiling. This gap corresponds with the height of the slight ceiling slant on that side of the room. The slant is there because about 1 foot of the bathroom sticks out of the side of the house with a little half-gabled roof.
The POs - and possibly the PPOs - continued the slant across the room for continuity. The POs stopped it at the little cabinet/closet, but perhaps when the room was one long room instead of divided into a sink room and a tub/toilet room, the slant went the whole length. That would explain the gap at the top.
So, solutions. I guess we could reconstruct the slant all the way across the room when the wall between the two sections is demo'ed. It wouldn't affect anyone height-wise because it only comes down 1 foot, and we have no 9-foot-tall friends. Then we could leave the beadboard the way it is.
Or, since a few boards are damaged or have nail holes from the drywall, we could take it down a few feet and use the extra to replace the damaged pieces. But how are the boards attached to each other? I'm operating under the assumption that the tongue and groove just fits together, no nails. But are there nails?
Or, as John suggests, we could borrow some of the beadboard from the half-room in the attic to fill in the blanks.
Or, as Greg and others suggest, we could make a little frieze around the top of the room.