Surprise behind bathroom mirror

Hello, First post here, just wanted some more opinions on what I should/could do. I would consider myself an average DIYer around the house. Probably my biggest project to date is tearing out a fiberglass shower and putting in a tile shower. We bought our house about 12 yrs ago, about 5 years after it was built. My wife wanted me to replace the mirror in an upstairs bathroom. The mirror is about 3 ft x 5ft. I have done this previously in a bathroom downstairs. I got it off the wall and what is staring me in the face ( see the attached picture ). Attachment 40128 (http://www.doityourself.com/forum/attachments/walls-ceilings/40128-surprise-behind-bathroom-mirror-photo.jpg) This is the wall that carries the 3" vent pipe. Obviously they didn't build this wall with 2x6's like they should have to allow for the 3" pipe to have a place behind the drywall. So they started putting up the drywall, realized their mistake and just cut a hole in drywall, knowing the mirror would cover it up. yes, I see the mold on sheetrock. The flashing on vent pipe had cracked allowing water to go down the pipe until it hit the wall where pipe is against it. I noticed the flashing issue right after we moved in long ago, and regularly go up on roof to check/repair all flashing. If you are facing the wall, it has a 10ft ceiling on left hand side and then about a 7 ft ceiling on the far right side and is approx. 12 ft long. Under what was the mirror is a 7ft vanity, 2 ft space to the right, then toilet, then another 1ft space. ( Hope that makes sense ) My question is.. what should I do to fix it? I first thought.. fix it the way it should have been to start with when they got to this point.. tear down all the sheetrock, put 1/2" to 1 inch furring strips on outside of 2x4's, then put sheetrock back up. This would be my wife's choice, because then she can get a new vanity, toilet, floor, etc..LOL 2nd choice - tear out the sheetrock around pipe and replace it with 1/4" sheetrock and hope it still doesn't touch the pipe.