Here is old bar niche pic. This was old owners style

I actually would keep the bar - they are becoming more popular with entertaining. I recommend updating it. remove the mirror, tile the wall and add shelves. New countertop and sink/faucet.
First, I should ask, what is your style, colors, etc.

Great big room. Biggest issue I see is that the furniture is spaced too far apart. Make the fireplace your focal point. Bring the couch away from the wall (at least 36 inches so you can access the slider) and closer to the fireplace. Keep the red arm chair kitty cornered and move the tv stand along the wall such that it is visible from the couch. Move the black leather chair to the other side of the tv stand. (You could also flip this arrangement to see if that works). Once your furniture is arranged, pick an area rug that allows all the furniture to be placed on it (or at least the front legs. Leave the area closer to what looks like the basement stairs hardwood.

Maybe it's me, but having different drapes in the same room would bother me. I think the blue is too heavy looking. How about something more ethereal? IKEA linen drapes are cheap and look more $$$.

If you really want a transformative look paint will go far. That tray ceiling can be painted a shade lighter or darker than the walls and would look awesome!!!

The bar cabinet is dated. How about painting it black and adding new hardware?

Hope this helps!

Here are a few different style of bars/entertaining areas

You could also try having the couch face the fireplace and putting a console table behind it. Could help break up the vastness of the room. Take some pics and show us how it goes!

Yes we were planning on adding tile or rock to back wall of bar niche but unsure of how to do shelving due to soffit. We were thinking maybe wine racks like a wine niche. We go back and forth on whether yo keep sink since it is in the living room.

I agree 2 type curtains look strange but that is a door to our patio, so I didn't know what to hang there? We rarely use that patio door as we have better access from our breakfast room.

My husband and I have also debated getting rid of wood trim and replacing with white.

All curtains should match, art over the sofa is too high, stuff on the mantel shouldn't approach the ceiling, and for sure paint the crown white at least. On the mantel, I think a shorter vase for the flowers may be all you need. But the molding for sure needs to be painted the same color as the ceiling because it chops the space all up.

I would really like to see the sofa face the fireplace since that's your natural focal point. Perhaps the TV could move down toward the fireplace and both chairs go in front of the wall with the sliding door.

Since this is patio door, what kind of curtains or shades should I get to not look awkward next to the windows?