The first thing I noticed was everything you own is low and linear. You need to add height! At $59/each these bookcases are affordable, I would place two on the wall behind your dining table: [houzz=]
Add some colorful art between them, and to fill the bookcases choose objects pulling color from the art: [houzz=]

I think the largest part of your budget could go to a great entertainment center. This one is modular and when you move can be taken apart and the pieces can be used in other rooms, if necessary: [houzz=]

That's a nice space. The first thing i would do is add some color to the walls! If you can, paint that wall behind the dining table a bold color. And if you can't paint it, hang a large pic or rug there.

Try the local thrift and resale shops. They usually have little treasures that can add a lot to a room for less!

Thanks ajallssr! I would love to paint the wall, but unfortunately this is a rental and my owner's a bit fussy. Pictures are definitely doable though - I was thinking of something in black and white print or do you think that would be too boring?

Photographs are so deceptive for size and scale, so it's hard to tell just how much room you have. However, There's a lot of distance between the sofa and the TV. You could pull the sofa group closer, away from that wall. Don't be afraid of empty space or feel you have to jam the furniture against the walls.

Pink and purple may be your favorite colors, but they're hard to decorate around. I suggest you keep an eye out for some linen curtains for all those windows.

TO have a rug that is big enough may be more than your budget allows.

Check out Goodwill stores, thrift stores and Salvation Army. You'd be amazed what you'll find. I just bought a loveseat in perfect condition for $45, had 9.5 yds of upholstery fabric that is to die for for $6. It may cost me $300+ to get it reupholstered, but it will be worth it. I found my turn-of-the-century iron bedstead on the side of the road and refinished it. The finds are out there. Good furniture is the easiest thing to come by. THe problem is to avoid collecting too much!

Is the rug large enough to go under the table and chairs? Olldbob's suggestions on the IKEA pieces is a great one. You can use them again and again as they can also run horizontally and you can buy casters, stack them and roll them around for servers. Very versatile. Also, IKEA has this great, huge round mirror that you could hang ovet the table and chairs.

Find out if there is a ReStore in your area. They are home-improvement stores run by Habitat for Humanity and you can find great stuff there for cheap! Put in you zip code on their home page to find the closest one. Habitat.org

As others mentioned, you could move the couch away from the wall and window and closer to the TV, and maybe take it apart to make two pieces--it looks so cramped with the coffee table and rug as is. I would also consider putting the rug under the dinette se, unless you eat there every day and it would be a hassle to have a rug there.

Ditto for the bookcases and entertainment center and finding inexpensive art. Textiles are great because they don't have to be framed and you get a good size for not much money--can be stretched on a frame or just hung from a sturdy rod or piece of wood even. Lots of little pictures arranged to form a whole is another option, esp. if you already have some.

You might even try hitting the multiplex and ask about their old movie posters--or better yet, the second-run place. They might be willing to sell some to you. I can buy them for less than $5 each from the local joint, and it is a lot of graphic impact for not much money. Also got some cool posters from the bookstore for $2 each, and for the ballet and bands for free (just asked and waited for the event to end). Keep you eye out for something eye-grabbing and ask.

Check out this site. Go to "Enter the make room planner". You can enter your room size and shape then mess around with furniture, rugs, lighting shelving etc...It's pretty handy! http://www.urbanbarn.com/Room-Planner

Thanks everyone for all the suggestions! As Inkwitch mentioned, photos can indeed be deceptive - my sofa is already about 2 feet away from the wall. I could pull it up by about a feet or so but any more then it might look like it's in the middle of nowhere. Judyg, the rug is indeed large enough to go under the dining table, so I will definitely try that as an option and have a look. My worry is that the sofa area will then look too empty and getting another rug might be too expensive. If I could do it all over again, would get a bigger entertainment unit, a bigger rug and no pinks in anything but unfortunately this is what I have to work with for now! I love victorianbungalowranch's idea of getting old movie posters - both my husband and I are movie buffs so that fits perfectly! I am not in US but am based in Dubai, so we don't have some of the stores recommended by all of you. I'll play around with urban planner and try out all your suggestions! Thanks again!

Don't they have some huge mega-malls in Dubai? I bet they have movie theaters there and you can maybe get a movie poster in Arabic--ask a friend to help. That will be a conversation piece when you move elsewhere.

Gosh, I think you could find all kinds of wonderful textiles there--you are right near the epicenter of some of the most beautiful handmade rugs in the world and if Dubai is too pricey, maybe a quick trip to a lower-priced neighborhood or to Turkey or someplace would yield some interesting things. I loved the colorful headscarves I found in the local market in Turkey (where no tourists went) for next to nothing, and as long as you are willing haggle, you can get all kinds of handmade and machine-made textiles, bedspreads, pillow covers, metal work, carvings ect...if you look around.

Don't they have some fleamarkets or something around there? Where do all the poor guest workers shop? Then you can get tins and grain sacks and other packaging that can look pretty cool framed or just tacked up.

If you can save up some money for some nice rugs, they will last a lifetime. Kilims are not as soft as the pile type, but can be very beautiful. Avoid the chemical dyes and bazaar quality if you can, except for maybe entry and kitchen where you don't care that much about them.