Pick up your favorite color from the spread for the alcove wall. Go for your next fav color from it in a new area rug - maybe with a pattern that themes with the bedding concept. If you really are sure you want the bed there I think you'd be happier with some shaded swing arm lamps, but the electric will be too far from the bed to be effective for reading. I'd think about moving the bed under the three pictures between the two windows, Angle a nice chaise or chair with ottoman, a floor lamp and small bookshelf for the alcove/reading nook. Stack the Euro pillows to one side for floor seating when kids, grandkids visit the room if you have any. You can repair the holes left by the UFO lights and redo the drywall before repainting..

This is a clean tailor headboard:

Metalic with glaze or paint with glaze

Rather than bedside tables: have a built in made into the entire width of the niche. Make the height comfortable for holding necessary items: clock, lamps, etc. Your bed will butt up against this. This will allow you to have a large area to spread out on , and a larger bed if desired.

Let's select your bed first. Perhaps one of Z Gallerie's wing back beds, such as this one: http://www.zgallerie.com/p-12197-jameson-bed-bella-pearl.aspx

Then I'd swap out your sconces for some swing arm lamps. Make sure they take at least 100 watt bulbs if you like to read in bed. The electrical connections for your sconces may need to be lowered for the swing arm lamps to be useful when reading.

How wide is the bed niche? It looks like you have a queen size bed there now. Is that correct? I need to figure out how much space is left for night stands.

I would paint the wall niche a dark, bold color that you love, and do the same in your tray ceiling! There is a shop on Etsy called the Tufted Frog, and she makes custom upholstered headboards that are beautiful for great prices...check her out! As for side tables, as long as they are the right measurements, you can do any shape, color, etc. I would also do a beautiful patterned quilt/duvet cover that ties in accent colors that you add to the room through paint/decorative pillows, headboard, etc... You have a beautiful room already- you just need to embellish it a little!:)

I agree with what's been said above, and I just want to mention that the sconces would work just fine if they were placed lower in relation to the bed. Regardless, I think you have a good start.

I'm loving the one houssaon posted with the light background and colored wall. Creates more of soothing feel especially since your spread is also white. As for side tables get something large and have them painted if you find some good used ones. Can a spray is easy to do. If you are going to have side lamps there is not reason for wall lights. I personally love lights that area above each pillow so each person can read, but it's doesn't fit every style. By the way love love love the ceiling in the dining room!

Well, first off, thank you all so much for your advice! I've read and re-read all of the posts and have put a lot of thought into your words. They are appreciated!

We have gone ahead and ordered a new bed from Z Gallerie and took the recommendation of the crisp, taylored-line headboard. I should have looked at that recommended Etsy site prior (thanks dcer!) but had already ordered the bed last week. Bummer!
http://www.zgallerie.com/p-12842-jacqueline-bed.aspx

Next up, I'm looking for a soothing, comforting colored duvet. Perhaps, a silvery blue? Along these lines I was pondering wallpaper the niche a light silvery color, (along the lines of the left picture posted by houssaon) while painting the tray ceiling perhaps the same silvery light color? The remaining three walls would be a darker blue (but in the same family as the silver?). Thoughts??

As far as the sconces go, I'm still hemming and hawing over getting rid of them all together and have side tables w/ fun lamps on either side, or installing a sconce with a swing arm.

A new rug will be needed as well. I will pick that out once the bedding and paint come to closer fruition.

I'm finding this project to be a fun problem to have!
Thanks again!

Opinions vary, but I like the idea of wall sconces instead of table lamps. You'll never knock them over, or knock over a cup of water trying to turn off the table lamp or run out of space for the books/alarm/water glass and so forth

Linda--excellent point! I didn't think of this and with limited space on either side of the bed, it makes my choices of bedside tables on the small side in size. Lamps would just add another "thing" and less space for other necessities. Thank you for your advice.

I like the combo of a lighter colored niche, darker colored walls like houssanon's picture. Choose your bedding before your paint.

Shaker Workshops sells a beautiful cherry wood candle stand - a small, circular table - that makes a dandy bedside table in a small space. The tables are a traditional shaker design and can go with either contemporary or traditional interiors. You can buy them as a kit or finished, with several finish options. (No, I'm not an employee of the place, I just have a couple of the tables and love them!)