Giggling...yes, it rather resembles a pumpkin! Yes, curtains only half way up those enormous windows- and get rid of the high ( well 'eyebrow') valances. Maybe consider wall mounting your TV to the right of the fireplace. Place media beneath. Perhaps a black shelving unit to the left of the fireplace to balance. You need some large artwork ( canvass prints, framed posters etc) to give some color and life to the room. Plus that will help bring the focus down from the high windows. That leaves you with the wall beneath the staircase. Maybe a nice long cubby or cabinet to story the kids toys that they can access easily.

A thought for under the staircase

and a bookcase for the left of the fireplace:

Definitely remove those valances and drapes. Case out all the windows in white.

Agree with Diane's suggestions. The scale of this room makes the perfectly normal-sized fireplace and art seem tiny, so I would build out the sides of the fireplace with bookshelves and on the side without the TV (if it's on that wall and not the wall to the left) I would add some tall potted plants, a piece of leaning artwork, something with height for balance.

Thinking about upper/lower colors with a chair rail added is a good idea, versus having accent walls like you do now.

For more coziness, a beautiful large patterned area rug.

This is a challenging room in some ways, but it's also awesome! I'd like this challenge. :)

Consider running a large molding around the room at 8'-9' off floor, remove the drapery and replace with sheer window panels similar to these photos

http://www.houzz.com/photos/query/2-story-living-room/nqrwns

[https://www.houzz.com/photos/bywood-street-residence-transitional-living-room-minneapolis-phvw-vp~5126930[(https://www.houzz.com/photos/bywood-street-residence-transitional-living-room-minneapolis-phvw-vp~5126930)

[https://www.houzz.com/photos/delia-shades-moorish-door-contemporary-living-room-phvw-vp~1245907[(https://www.houzz.com/photos/delia-shades-moorish-door-contemporary-living-room-phvw-vp~1245907)

Scott is correct in suggesting running a molding at 8-9' that will tie in with the built ins on either side of the fireplace. A much better solution than the chair rail which will have no effect on the scale of the room.