Shower – use mortar to transition a height difference between cement board and drywall

Greenboard is water resistant, but should not be used in areas that are going to stay damp, such as tub surrounds.

Once water gets into it (especially if it's not sealed correctly, and there's not the requisite gap between the tub and the wallboard), it will slowly deteriorate and/or mold -- it's water resistant, not water proof.

Yes, cement board is a pain to work with, it's better than having to tear out the whole wall because something was off in the installation of the greenboard.

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All that being said, I believe I've seen some home improvement shows that used greenboard and then waterproof membrane over everything to add an extra layer of water protection when they were doing a shower install (tiling the walls and floor; and there was no tub they were joining up to).

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You might also want to check with your local government -- it's possible that there might be codes that dictate what you're allowed (or required) to use in shower/tub areas.

I would probably use unmodified thin set to cover the gaps and give a good base for applying the tile.

Could you do something a little decorative and use a border tile around the repaired area, sort of like a picture frame? Then use a different tile to fill in the area. The border would make the change in depth harder to see.