put a shelf unit on the inside wall where the guitar is, put a desk where the keyboard is, make it look like one unit. put you keyboard on the desk then have it wrap down to a window nook if you can do a custom built in.... very cute room love the coffee table! for go the hidden storage there is a ton of space for shelving there!!!! then if you had a little nook to sit and lok out the window the wall light would be in a great spot! and you could put more storage either hinge top or doors at the bottom. wall mount your ladder.

Wow I could have so much fun with this little nook, it lends itself to a reading nook or office, make it a feature, you can't hid it, put an unusual chair in there with a floor lamp or swing lamp, I think you need more dramatic curtains

Just some ideas re curtains, even though that wasn't your question but would give room a lift

Okay, mnkiwi89, what do you think of these ideas? We need to hear from you!

I love them but I'm in New Zealand, so no Ikea for starters :-(
My initial thought was exactly what several people suggested, tucking a desk/shelving into the corner, but that effectively blocks off access to those hidden shelves, which seems a bit of a waste.
As for the curtains, they are a boring, but look what they've replaced! (Eeek!) Due to the windows only being single glazed, they have to be pretty thick and thermal, so as lovely as gauzy or eyelet curtains would look they would mean heat loss come winter. We kept them pretty simple because at some stage we may rent the place out and there's gray stone in the fireplace I'd like to incorporate. Even the books up top may be a foolish idea considering the earthquake risk, but nooks seem meant to be turned into reading corners! Maybe I should just sacrifice the hidden shelving for the desk. Or maybe do wraparound shelving like the second photo?? I do love books!
If you look closely there is a curtain track along the ceiling. Maybe sheer curtains would less out of place than a door? I just can't decide if I should make it like a mini room or try to pull it into the rest of the lounge. More mirrors? I guess is some ways the possibilities are endless! Thanks so much for all your help, I love the photos! :-)

it wont be a waste of the shelves b/c you will have new ones...

True, it's just that the hidden shelves are very deep, so most of the things I store there wouldn't fit on bookshelves. Currently I can fit my yoga mat in there and no one can see it!

can you show us the shelves? what then if you did a wrap around shelf in the corner area like the above picture and wrapped it out to the "desk" area....

Having seen another photo of the space now, I would definitely leave it open to the rest of the room. It seems the perfect place for a library and the alcove to the left seems an ideal location for a desk. I would move the sofa to another location in the room.

It would be helpful to see picture of every wall in this space.

This may be a very odd suggestion, but if you want a cozy nook to read in, without separating it from the main room, how about building a raised platform to fill the space (to windowsill height) and top it with thick cushions like French mattresses or even futons? You could make all the space underneath into storage and/or bookshelves. One giant but very useable cozy reading nook!

This is what I would call an alcove. A most interesting, intriguing, wonderful bit of extra space in a room in which almost endless purposes can be found. You can utilize it in any of so many fabulously unique ways. Take advantage as best you can to either make it the focal point of a boring room or try to ignore it. I would never be able to ignore it. It is too great an asset. I am so anxious to see what you can make it into. I could give you ideas but that would spoil all of your fun!

I took a few more shots so you can see the shelving referred to previously; you may also be able to see the thermostat that controls the vent there, so that's also something that needs to remain accessible.

I just added who I could to my ideabook for this space, if it works anyone should be able to see it here:

http://www.houzz.com/ideabooks/32318619/thumbs/mnkiwi89s-ideas

I actually love the idea of building it up; if the ceilings were higher I would totally loft a bed above it! Good thing my husband is handyman extraordinare; he built that coffee table and reupholstered the gray chair :-) And for the record, I completely agree we need a new couch. We got married in Minnesota last June, then moved to NZ (his hometown) in August are still "setting up house," so someone kindly lent this to us for now but I'm on the hunt for something that fits the space better and is less drab!

Well, I love your idea of the corner bench seating in the photo above, but I'm totally not understanding the photo above that shows the edge of your rolled up yoga mat. It makes the mat look only 5" long as it projects to the left into the space where the door appears to be opening, also to the left.

Sorry, here's a wider angle view of the door. It simply slides across the space between the kitchen/dining area and the lounge. so the shelves you just see the tip of are about 3 feet deep. Hope that helps!

Well, for lack of a better idea, since you find it a drafty little space. I'm assuming the draft comes in on the right? Most of the necessities in the area are located of the left side; i.e. vent, thermostat, light switch etc. What I would do I think is caulk up the drafty spots, maybe even add sized poster board wrapped in batting I covered in a gorgeous fuscia with diagonal grosgrain ribbons every which way covered with a heavy velvet to be attached to the area above & below the window. (Of course remove the drapes that are hanging in there). This for the purpose of using it as a pin-it board for notes. Attach a table height board covered in felt to carry across the full width of the little room. Leaving just enough space for a comfortable little antique desk chair. Paint the back wall a bright cobalt blue, paint the ceiling a silvery pearlescent white. Find a way to attach a clip-on task lamp. And stretch a heavy duty enough wire across the top of the opening and complete it with a heavy doubled velvet drape with a drooping valance. Place a swag with fringe & jewels on it to be closed when not in use. Voila intrigue is yours!

Looks like an entry area would be nice. Someplace to hang coats, wet things, mail, keys, etc. then add a sitting area, couple of upholstered side chairs and a table? or still have your bench for reading.

That would look so svelte! I wish it were just a matter of draftiness with the windows; the windows being single glazed means they simply can't trap heat the way double or triple glazed glass can. They also tend to get condensation in the damp winters here, so I have to be careful what I cover. (Found out the hard way with mold in the bedroom when I hung a blanket over the curtains to block light - yuck!!) While I'm used to bomb-proof construction of MN houses, New Zealand houses tend to be much less insulated. So if it's 40 degrees outside and the fire's not going, it's 40 degrees in here! Bit of an adjustment from simply setting the thermostat to 75 ;-)

What does the wall look like across from the sofa?

The wall across from the sofa contains the one thing that still really dates the place - the fireplace. I have high heat spray paint ready to make the firebox solid black and my next project is to whitewash the stone. But herein lies my next dilemma - the top stones are rough and will absorb the whitewash just fine, but the bottom stones are polished and won't. What can you do? Paint stone? What happens when ash falls out of the fire?

Either way the room is a bit narrow to put the furniture in many other arrangements. We could put the couch against the window but it means we'd have nothing other than those chairs directly across from the TV, which isn't ideal for viewing. A two seater would definitely be a better fit here, and a slimmer coffee table wouldn't be a terrible idea, but my husband built it from a tree that fell on his family farm, so it's a little piece of history I'd hate to part with!

Paint the brick around the fire box black and white wash the stone...if the hearth is the part is the polished maybe paint it black also...maybe paint mantle black as well.

Need to bring your art work above the fire place down...making your TV part of art...bring the black framed art on the sides down closer to the mantle...then bring the cent pieces down as well...much to high.

Try the sofa at the window...put the two black chairs across from sofa and the. The gray chair where the sofa is now.

Will the desk fit under the window in the nook?

Love the coffee table!!! I would keep it too! Great game table...

Did you do anything to your room?

A little! In an effort to visually open the space I got another round mirror and am thinking I'll make a collage once I accrue a few more. I'm still on the hunt for a bench seat or daybed, but in the meantime I got my husband a foosball table for his birthday, and while it will most likely live in the garage it's currently living in the nook so the kids can play it when they come over :-)