Can you post pictures of the other 2 walls? Looks like one might be kitchen? and other stairs?

Yes, it opens to the kitchen and dining nook. Hopefully these help! Also planning to change up the kitchen a bit with a back splash.

Remove the stair case railing and build a sheet rocked pony wall and then place a modern leggy thin armed sofa facing the fireplace.

Rip out the shelves on either side of the fireplace and place your chairs facing the sofa and angled toward the round cocktail table.

Place two small printed cube benches in front of the fireplace for extra seating. Hang floor to ceiling curtains in a geometric or print to match or blend with the upolstered cube benches.

Find modern art to hang wide and low over the new sofa. Add pillows and place a floor lamp on the wall side by the sofa or reading and ambiant light.

A pair of low pharmacy lamps can be placed on either side of the chairs by the fireplace for ambient lighting and reading, etc.

You could put a small sofa in front of the stair rail possibly without putting up a wall and see how you like it. You might want to buy two chairs with a slightly smaller foot print, but I'd try putting them under the window with a small table between. I like the idea of the cubes or x benches in front of the fireplace. If you wanted to add another small chair flanking the right side of the fireplace, that could add another bit of seating as well.

I can see why they don't stay in the kitchen area as the 2 chairs and coffee table are too big for the area. Could you move the dining table and chairs to this area (if you have such a thing) then you could set up a buffet on the table, which would bring people together.