How is this unexpected? Wouldn't you expect a fireplace to have a chimney?

Was the plan to remove the fireplace? If so, just take the whole thing out but be aware that the chimney probably extends down to the basement.

If you don't want it and it is non-functional, get rid of it. There is nothing keeping it in place....except the people who drywalled it in. The gas fireplace was put in it's place because someone wanted to keep the "feel" of a fire place without the wood burning issues.

You don't want to keep anything of that structure...so get rid of it.

Wow, surprise, surprise. Unfortunately, the condition is very bad, I wonder if it is worth trying to restore. If your plans are to open up the space, then I see no useful purpose in keeping it. Also it doesn't appear to be the style you want in the area.

If you want to keep it as a conversation piece, do so. It should clean up with some TSP and a scrub brush. You can place seasonal decorations in front of opening or candles of different sizes.

i am just going to give my little worry. No idea how old your house is. Often these old fireplaces do make a difference to the structure of the house. I know it sounds silly, but we even had a discussion about it once. i would ask an older contractor, maybe from a family of such? just to make sure.

I agree with the comment to get a second opinion on whether the fireplace has any structure in case you need to add some support before removing. It might be kind of cool to try and salvage some of the old brick and use it as an accent in your new space.