I'm a fan of color, and since your floors are a light neutral as well as your walls ( unless you want to paint the walls a fun color) then go for color! I like the couch, maybe some colored and patterned pillows for that? I would put the longest part of that couch in front of the longer window, and the shorter end facing toward the fireplace with your tv on the fireplace. Then you would have plenty of space for your dining area, by the smaller window.

Thanks for your help ladies. I should have mentioned that we are using the entire space for the living room, no dining room.

Between the fireplace and window there is 70.5". We haven't purchased our TV yet but was initially thinking 46".

The TV over the fireplace will make furniture arrangement much easier ...adding color on the walls is also the first step toward creating an interesting room...keeping all the long term furniture items in more neutral shades...the couch question implies a difference in style ...sectional being more modern and couch being more traditional...if you plan to entertain a lot a sectional is more practical..since there is room maybe a compromise would be a sectional and one or two big comfy chairs ...as to color a mid-tone muted..dusty version of a favorite color is a place to start...or a striking area rug could be your color guide...but to be sure the color is something you can love try visiting "photos" on Houzz maybe type in living rooms with colored walls or other variations..this will also give you furniture ideas

How high would the TV above the fireplace? If you were sitting on the sofa would you have to look up to watch tv? I think that will help you decide if the fireplace was an option or not.

Your fireplace can be an amazing focal point for your room (depending on the view from your large windows). If you use it for the TV you would lose that somewhat - it can still work but personally I believe that TVs create a big black whole that is hard to disguise.

If you put the TV between the window and fireplace you can have the sectional in front of it with the longer part covering part of the pass through if you watching TV is more of a priority. If not then place the longer part against the wall. A sofa table behind the open part will make a great division.

It's a beautiful sectional but could you get it in a different arrangement? More of an L shape than a U. The current arrangement fits better in a square room. With the L shape you can add an accent chair across diagonally beside the fireplace. Then have two large accent chairs and a really cool table below the large window. Which means you both got part of what you wanted.

For colour on the walls, I personally think that sticking with a neutral colour and then adding the pops through furniture and accessories. I get bored quickly, and no matter how much I love a colour, I eventually tire and would want to change it. If you don't like cream(I don't too) you can go for light grey.

Hope that helps :)