Just to clarify Pete, you would redgard the blocks?
Does redgard come in clear?

No, that's not what I meant. The glass blocks are essentially water proof. I meant waterproofing the niche. You could make the niche out of cement board butted up to the glass blocks and then water proof the CB with redgard right up to the blocks. Then tile the return and silicone the joint against the glass.

This approach lets you adjust the size of the opening quite easily and you are not stuck tying to adhere a little strip of kerdi to glass.

Update on the situation-

Customer found someone else for the glass block.

Other guy says he plans to frame in opening to proper dimensions (an option I rejected) with PT lumber (!), install the blocks on the inside and cap the outside.
1) My understanding of PT is that it should not be sealed in or capped, as it needs to breathe and will tend to dry up and split and twist. 2) Also, why PT? If water gets in there, there will be bigger problems before the wood ever rots.

As a constructive suggestion should I suggest he use KD?

This plan will essentially be not much better than the original wooden window frame but will have to work with it (and hopefully learn something about installing block).

PT is a bad choice. It should never be used for interior framing. It will likely warp or twist as the over 19% moisture content starts to dry out.

This installer is already starting off with the wrong proceedures. I'm not so sure your going to learn the correct methods for installing glass block.