Attention all plumbers: How and What is happening here and what is my best way out?

Well it sounds like you have quite a quandry on your hands. Best to just re-run the lines as you say. And the best thing to use is PEX. See a plumbing supply dealer for what you need and advise. It is easy to work with and very flexible so you can run it overhead and easily feed it down thru the walls to your fixtures.