It might be a good idea to look for lighting that hugs close to the ceiling--clearance might be an issue and no one wants to hit their heads!--but is much, much more stylish than those old fluorescent panels. Ceiling flush or semiflush mounts might be a great solution. They come in a wide variety of shapes and styles!
http://www.lightsonline.com/flush-mounts/ and http://www.lightsonline.com/semi-flush-mounts/ so you can see what's out there.

Getting rid of the wallpaper and painting the walls will go a long ways to improving the look of the room, I think! Do you have a favorite color that you want to include?

I'd suggest changing the cabinet hardware as well - it looks like the current pulls have porcelain centers.

Good luck with your project!

I agree with all the comments so far, and want to suggest that when you replace that light, you can put it up in your gargage unless it's extremely well lit. My husband just bought another such unit yesterday for a dark spot in the garage.

For a temporary fix you also may want to paint the backsplash tile.

We spray painted our kitchen and it turned out amazing!!! That combined with new handles - it will look like a totally different kitchen.

The cabinets are beautiful! I wouldn't touch them. Definitely get rid of the wallpaper, scallop, and accent tiles. The white backsplash tiles seem to work with your floor and counter. In the space over the sink, I'd hang a colorful something to break up the large expanse of white. Leave the ceiling white, paint the walls in a color you like, and voilà!

I agree, there are some great features in this kitchen the cabinets being one. Getting rid of that wall paper and painting will make a big difference, changing up the knobs and you may even be able to find some kind of peel and stick to put over those windmills that would better suit your new paint colour.

You'll be able to sell the Delft tiles so don't damage them.

That is one huge kitchen and I'm sure once wallpaper is removed and painted you should be very happy. Cabinets look nice also.

Thank you all for the great ideas. I am thinking of a very soft green (sage) color for the walls. The counter (which I like a lot) has more brown flecks than appears in the pics, but I think a light green will complement the counters and darker wood. I just need to be careful to choose the tint carefully.

I appreciate the links for lighting. Would recessed lighting look nice? Is this still in style?

The paper removal is proving to be monstrous, and the wall appears to have been excessively puttied underneath. It will be difficult to fill and sand the damage in a way that doesn't show under the paint.....

Hi Rachael - yes I think recessed lighting is the best, especially in a kitchen. It stays up and out of the way and doesn't catch any of the grease & dust plus the illumination from recessed lighting is much prettier. The only issue with that for your kitchen is that it appears you have drop ceiling panels and I am not sure recessed lights can go with that. If there isn't any drywall behind the panels - I.e., you could remove the panels and install the recessed lights into the drywall itself - you might have to have the whole ceiling dry walled which adds to the $$. More thoughts in a minute ...

Overall my thoughts echo most of the others here: paint the walls, I would get the cabinets painted as well (maybe off white since you're thinking a green shade on the walls? Change out the hardware -go online for that as you'll get a better selection and won't pay as much although hardware is more $$ than you'd think! Remove the scalloped trim over the sink. Install a recessed light directly over the sink with a dedicated switch -then when you go in to rinse a cup quickly you don't have to turn on all the lights. Consider replacing the windmill tiles with bronze accent tiles or with glass mosaic tiles. The windmill tiles look like 6 inch in size -to get an updated effect with mosaic you might have to knock out a couple surrounding tiles fore each spot as well but glass mosaic tiles are beautiful.
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More: for over the sink: maybe install a shelf or two to hold items (preferably decorative or nicely styled necessities like the ones you see at Williams Sonoma). Also how about undermount lighting under the cabinets over the kitchen counters?

:) me again! I really relate to this because we have an old kitchen too with similar issues. We don't have wallpaper but our cabinets are very old and need some serious TLC, so I've been considering options for awhile now. Anyway the colors we are considering is Valspar's "Secret Moss" - it's a soft green/grey for the walls, and their "Honeymilk" for the cabinets. You might check out the big paint manufacturer websites for imaging apps where you may be able to upload a pic of your kitchen then change the colors. Also I've read that Rustoleum makes a DIY cabinet paint kit that seems well liked.