Corrected entry: Peggy decorates the bathroom next to the garage, but when her class arrives to have a look at it, they all go upstairs.
Corrected entry: Al goes upstairs and yells in excitement that "she listened to me" referring to Peggy not messing with the bathroom upstairs. Later in the show Al says he will use the bathroom upstairs because she ruined his bathroom in the garage. Peggy says he shouldn't use the upstairs one because she decorated it like a woman's bathroom. So at first he saw it and was happy she didn't change it. Later she said she did and he acted surprised but he already saw it normal.
Correction: Al does not make the statement referring to the bathroom upstairs. He doesn't like using the upstairs bathroom because of all of Peg's stuff in it, so it's unlikely he would checked. He's more concerned about his bedroom so he just did a quick check of that.
I understand what you are saying but he said it when he went upstairs and there is only one bathroom upstairs. I guess I am only saying bathroom because he knows she was doing a bathroom and went upstairs. But I do see what you are saying. I guess we both could be right ;).
At that point he had no idea she was going to redecorate a bathroom. She only chose to do the bathrooms because "a bathroom is not room." Since we know he didn't check all the rooms in the house before making the statement or talking about his win with Bud, it's safe to say he only looked at his bedroom, since he also wasn't up there long enough to check the kids' rooms.
Correction: That's because she decorated both bathrooms. She even says so in the episode.