With a 1/16" grout joint you will need to use unsanded, it is of a much finer consistency enabling it to pack intot he grout joint all the way.

Epoxy grouts can be difficult to work with if not experienced, but a new one made by Laticrete called SpectraLock is much more user friendly, definitely easier in the cleanup. Epoxy grouts in general are much more resistant to staining and do not allow for much water absorption.

A sealer applied over a cement based grout will help protect from water transmission but is not 100% effective.

Use a caulk in all corners and along the seams where the tile meets the shower pan. A sealer on the cement grout will be the easiest top deal with. As long as you maintain the grout and caulk so no holes develop you should be ok.

Thanks for the quick reply. Since I kinda know what I'm doing with regular grout, I think I'll go with that option and make sure to do a good job of caulking and sealing. I had some sanded grout left over from a kitchen backsplash, sounds like I need to get unsanded for the smaller joints.

The sanded grout has a much coarser makeup and you probably would not get it in deep enough into the 1/16" joint to have it hold over time. The general rule of thumb is over 1/8" use sanded, at or under 1/8" use unsanded.