I'm confused- you've been doing this for 23 years, but you don't know what to do with the existing walls, and you don't know what to charge?
Who cares what the other guys are charging! You need to charge what it's going to take you to do the job and turn a profit. You're never going to beat a low-ball contractor, and with a project like this, you're not likely to convince the owner to pay a premium for you based on your experience, etc.- especially if they're already using the "sharpen your pencil" comment before you've even submitted your first price. I hate to see people walk away from work, but this certainly sounds like a waste of your time unless you're willing to work very cheap.