Some large bookcases or an attractive armoire would make the space feel more comfortable. A less expensive option would be to make a large wooden folding screen out of old doors or to hang a ceiling mounted curtain rod with curtains.

If you like a modern look I would think painting the zig-zag wall a striking color could be interesting.

Maybe dress it up by adding some trim / moldings instead of trying to place furniture in this circulation area.

Agree with Lanie, a hot new color to make it a focal point.

What about painting the wall in the recess created by the lower set of stairs, and doing something interesting with lighting to draw attention to it. It could look quite dramatic with uplighters set into the stairs coming up to this room, washing the coloured wall with light.

Here's an idea of what I'm thinking of: http://528columbine.denverrealestatehome.com/dramatic-staircase/

Also, do the walls have to stay? Could they be replaced with a more elegant banister and balustrade that would look a lot less blocky?

I think the best thing would be to remove the sheetrock and put up modern stair railings. They could be cable or plexiglass sheets or stainless steel spindles. Here are a couple of examples. Check out modern staircases on Houzz.

For low budget, I'd paint the wall an accent color. With a bit more of a budget, I'd construct a low bank of book shelves going the length of the wall, and integrated into the cap going to the lower stair. Take off the cap, and cover the ponywall and bookcase as one. I always need places to put books.

Removing the sheet rock will make the room appear larger.

How about a narrow (10 - 12") bookshelf/storage unit that runs the length and height of the low wall, where console is now. That would make the zig zag effect disappear, give you storage for things you may want near the front door and make for a nice display area. Practical, not expensive and won't be an issue if your are renting.

I think it's cool, and I would prob put black and white pics with black frames

I agree with many of these so I photoshopped you a visual. Added a couple starburst mirrors as well.

I would suggest putting wainscoting and a chair rail across the lower part, starting with the short wall behind the narrow table and proceeding at the same height to the right. Above the wainscoting I would display three or four large, framed maps OR black and white pictures of Presidents, historical figures, and so on. If space permits, perhaps you could have some low bookcases along this lower wall, where I first suggested the wainscoting.