Crown molding may make the room look even smaller. I would change the colors though to something brighter. Too subtle a color for the entryway to the house. Painting the doors and cabinets contrasting colors and changing the hardware and door knobs would help too.

Any ideas on colors? I'm kind of lost... or does anyone have links to ideas/pictures

Did you want to keep the wood chair rail? A couple suggestions would be to paint the whole area. Or you could wall paper the lower part of the wall and paint the upper part of the way. What colors do you like and what colors don't you like. There are soooo many colors, if you could help narrow it down a little we can offer colors.

HI -- Please take the wainscotting off and just paint or wallpaper . Leave the chandalier but lower it a bit then place a nice long console table with a mirror above -maybe a venetian mirror or a large round mirror and let the chandalier hang a bit in front of the side of the mirror and add some large decor items or candle sticks, then have a small bench under the console or two fabric covered cubes etc. Look on Houzz for some ideas as to how to decorate a console table. I don't think you need the crown molding but if you really want some, you can only do it with the wainscotting gone. The feature between the closets , I would just remove or have more closet space. Or you could remove everything and just have the shelf for a sculpture display .OR remove the whole thing and back it with some black mirror and have it as a sculpture display , either with a pedistal or something more full height . If this is the the front entrance then be rich and bold to make a statement.

On the cabinet replace the door with white one with frosted glass insert and paint the cabinet box white. Add a white marble or limestone backs plash. This should lighten than end of the room. If pulling the waist cotting panel is out of the budget consider painting it and adding a beefed up two piece chair rail. An up lite crown would offer a real pop if the funds are available.
http://www.bing.com/images/search?q=Image+up+light+crown+molding&qpvt=Image+up+light+crown+molding&FORM=IGRE