I'd like to see more photos around the living room area. Maybe one from the doors and one from the fireplace? From this angle, I suggest trying the couch in front of the fireplace and the two chairs facing the windows. Then, I would flip the couch and chairs and see how you feel about that layout. Having the chairs face the fireplace could make living room more open to the kitchen. I wouldn't put anything in front of the glass doors. Then I'd just leave the gap between the living room and breakfast nook.
For a more radical idea, you could move the kitchen table to fill the gap between the kitchen and living room, then create a reading book where the breakfast nook is now.

Thanks, guys! Yes...that big red blob is the tv over the fireplace...had to help the hubs install that one...what a pain! Here are more pictures...I was thinking of the couch and chairs facing the windows would work we'll...just worried about having enough seating...esp once the kiddos get older! Space isn't as large as it may or may not seem...instead of chairs, maybe two sofas?

Have you tried the sectional pushed against the stair wall? You would lose the walkway, but it would make room for the recliner and maybe even the chair in the kitchen. A big farmhouse table would be perfect in the eat in kitchen space. My neighbors have your layout and can seat so many guests. Your home is gorgeous!!

Thanks curlycook! The sectional will eventually go to the man cave. It is difficult to see in the photos, but the walls are gray and the couch is green...not ideal! Looked gorgeous in our previous space though!

Paint to match your previous space if it looked gorgeous there. I thought you said this furniture was the previous owners.

Oh ok then, what are the dimensions of this room? I'm sure we can come up with a plan if new furniture is in your future!

Nope...never said it was previous owners...just didn't want any advice to be biased by the furniture. :) Home is new construction and we selected the gray paint color. Hubs didn't like the gold-ish yellow of previous space...and, this furniture is really much too large for the space. Sorry for the confusion!

curlycook...it is about 16ft from the edge of the hearth to the edge of the wall with all the windows and just over 15ft from stairway wall to wall facing outside. I'm thinking more and more of a couch facing the fp with two chairs facing the windows. Maybe another smaller chair on a diagonal facing the seating to the right of the fp. And what are your thoughts on curtains...so much wonderful light comes in, but they seem naked without something. Perhaps some gauzy sheers? Thanks for your help!

http://houzz.com/photos/565742

This might work with the chairs in front of the French door and couch making a walkway by the stairs.

I did similar to curlycook. I had a sectional but was too big, so I bought 2 sofa's and put them on the window wall and opposite of that on the the chair wall, then I bought 2 small swivel reclining chairs and put them opposite the fireplace wall with their facing the tv area. Tv is where this photo shows. I only have one son left at home I have a large family and when visit, its more seating that the sectional ever provided. Plus anyone sitting in the swivel chairs and spin around and talk to the people at the dining table. I left enough room between the swivel chairs for a walkway to the sofas. Hope this helps. PS what is the paint color on the walls?

If there isn't another way in to the kitchen and dining area, I wouldn't push seating against the stair wall thereby losing a traffic path as you will get people walking I front of you if you are watching T.V. holding a conversation with someone seated on the window side of the room.
Is this the main television area of the house?
If having a lot of seating is a priority, I think a sectional is a great idea, but maybe one that has smaller arms, perhaps with canvas slipcovers that can be easily laundered if you have animals and kids. I would keep the sectional in the same general place as you have it, put a sofa table behind the section facing the television, install a custom bookcase either side of the fireplace and have a couple of small footprint chairs with a more rounded silhouette (to counteract the angular features of the room) along the window wall but not blocking the french doors. Shades would probably work best for your windows, but then to soften the room, I would use fabric on the small chairs that have a pattern and some sofa cushions to compliment them. Tie it in with a textured rug and add some large potted plants for dimension and softness.

Turn the sectional and place in front of the french doors still leaving enough room to get out. Then place the recliner near the fireplace (facing back towards the kitchen). You will not be able to use the recliner to "watch" TV but it should give you a better flow. I noticed there is a door outside by the dining table as well - so if you need to cheat a little (before you get the new furniture) then push the sectional back further against the french door.

2 couches (new slimmer maybe) facing one another in front of the fireplace. I would also add colour - lighter and brighter. The dark tones make everything feel heavy. And the couch (and massive chair that are parallel to the fireplace cuts off the flow of the room. Are there stools or room for a bar at the kitcken counter?
Good luck!

and maybe get a built-in L-shaped bench for the kitchen nook. that would provide lots of seating and keep a nice open space. you could have a versitile table that could extend the length or leave part of it open when you don't have very many guests.

This room is way too dark. Paint the walls a light color, put in pot lights, slipcover furniture if it cannot be reupholstered., or get rid it. Then, two light colored sofas (they do not have to be identical) facing each other and two club chairs facing the television, creating a large square space. The color you have on the wall would be better used in upholstery or pillows.

I hate tv over fp, it ruins the focal point. It should go a stairway wall, love the rest of room.

Thanks everyone! Lots of great suggestions! I wish I had photos without the furniture in...I know it completely doesn't work for the space...but we've gotta have somewhere to sit until new stuff is bought! The wall color is sherwin williams pewter cast 7673 and really isn't as dark as it seems in the photos. Is quite a lovely gray color. Adjoining we have monorail silver...also sherwin williams7663 is the number for it. Definitely agree that slimmer, lighter color sofas are the way to go! Thanks again all!