There are others who will give much more knowledgable advice, but here are my thoughts.
1. Given the size of your fireplace, I would not recommend putting a TV much bigger than the one you already have . Generally items hung over the mantle should not be wider than the firebox.
2. How far back is the seating if you DO hang TV over mantle? Would that height be comfortable for viewing?
3. I would redesign the shelves in cupboard to make room for a bigger TV, then remove much of the other items on the shelves to give it a clean, simple look. Not sure if it would be worth the expense to drywall up to the ceiling.

I would remove all all the wall unit except the bottom storage and place the larger tv on those. Then I would switch out the mirror above the mantle for artwork.

Ideas for over the cabinets then? It's a huge wall

A large TV can be placed where the current one is. It's possible and OK for it to overlap the shelves. I've seen it multiple times - TVs are very light and thin these days. Make sure it is secured safely. If desired, mount it on a pull-out mechanism that can also rotate/swivel. Of course you will lose the ability to hide it with this solution.

Replace the mirror with a large piece of art.

No TV over the FP - shortens their life and is bad for your health; unless your BIL is a chiropractor! I think I'd remove the shelves and install a large TV in the recess above the base cabinets. I don't think I'd get a TV larger than the dark firebox and surround of the FP. You don't want to overwhelm your natural focal point Replace the shiny gold mirror with art about its size. If you are interested in replacing the fan with a chandelier, I'd replace the present mirror with one that has a smaller frame so there is more mirror to double the chandy.

Ideas for fireplace? Stone? Tile? Mantle? All suggestions are wonderful!!

This might be 'off the wall', pun intended, but I might consider some minor duct work and closing up the space above the wall unit. I believe a soaring tall wall makes a more dramatic statement than a cubby space filled with items. I also think you have too many shelves. Try taking a few out and space more. Keep us posted.

1. I would keep the bookshelf and do a modification of it to encompass the TV. Here is a photo of one I designed and had a contractor do the work for me. This frame was built and "set in" to the existing cabinetwork. To built it, we used two 2 X 8's for framing, creating the depth we needed for the 65" flat screen TV. We then used "Bondo" to create a smooth, seamless front on the frame and hide the seam of the conjoined 2 X 4's. This also helped to match the depth of the cabinetry and make the redesign seem almost as though it had been originally built that way.

   

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   2) I think a large piece of art belongs in the large cubbyhole above the built-ins. See if you can get a spotlight insert for the canned light just above the cubbyhole.
   

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2. Since you have too many rectangular shapes in the room, I would switch to a round mirror over the fireplace to break up all those straight lines, or alternatively, a starburst mirror.

3. With the beautiful fireplace and the substantial built-ins, the framing around the doorway to the right of the fireplace looks skimpy to me. I would find some compatible molding to add to the existing molding to make it seem richer and more substantial. Contractors are used to doing this and know how to accomplish it.

4. I don't mind your fireplace, but might use carrera marble to replace the old tile and update the look.

Thanks for all the ideas and suggestions. We have lots to think about. Keep you posted.

I think the biggest issue is that you have multiple objects competing for a focal point. I would like to see the fireplace be the focal point. Marble or stone extending up to the ceiling with a heavier beefed up mantel would accomplish this. If you are going to change bookcases, why not bring them out a little farther? I agree that there are too many small shelves and small scale items on shelves. I think if you had a large scale piece of art for the niche it would look great; especially if lighted correctly. It could be sculptural, or a painting or mural, but should almost fill the space. Proportionally you should have fireplace the largest, then art, then television. This will remove the competing elements. Good Luck and have fun with it!