Spot on to above!

Install can lights in kitchen too! Google can light placement on HOuzz or the intenet or YouTube for info.

Honestly unless you are ready to update the entire house it all fits with the age and style of your home. I know it is hard to be content with outdated rooms but I think you will throw out a lot of effort and money for a band aid solution and will not be satisfied or increase your equity. Once you take down the cabinets over the counter you will have to repaint all the ceiling and may have a lot of repairs to the ceiling. I speak from experience and have done a lot of reno work. When you are able remodel entirely or decide to upgrade your home for another. Until then get a new light fixture for the dining room. Focus on nice furnishings, décor pieces that will elevate your look. Those investments you enjoy now and can take with you should you ever move on. Best wishes!

I think maybe that is a 80's remodel to a 60's house. Unfortunately, ceiling repairs can get expensive, though you might be able to find a competent handyman who knows drywall. Yes, if possible remove the upper cabinets and soffit above the peninsula, and possibly the ones over the sink too - and also the wood valence over the sink. Replace the cabinets on each side of the sink with open shelves. If you can remove the wood cladding the soffit then do so - it makes it look like too much wood and darkens the kitchen. Soffits are a reality in a 60's home, I have them in my 70's home and don't mind them a bit - but I would if they were clad in paneling. (My oak kitchen is in my idea book.) The cabinets themselves are probably sturdy and can be worked with. You can have the panel removed from some and replaced with glass. Or take all the uppers down and spend your $ on a pretty stove hood. Uppers can be replaced with a wall hutch, pretty wall cabinet, or just left blank too. You can use curtains and baskets to replace some lower doors. Although the pictures show mostly painted cabinets, these ideas can be done with stained ones too.

Really nice home.

Do paint or wallpaper all the actual walls, including above the countertop backsplash.

Please don't paint the wood cabinets.

Do take out the overhead cabinets above the peninsula and that odd backsplash thingy above the peninsula countertop below the overhead cabinets, too. You'll likely need to add at least one of them back to the wall beside the other cabinets but facing at a right angle to where they originally were or create a new cabinet where the side of these cabinets were affixed to the wall. Then repurpose the other overhead cabinets to your garage or basement or even your bath or bedroom closet.

Consider adding a bar shelf behind the peninsula.

http://3.lushome.com/wp-content/uploads/2012/09/modern-kitchen-islands-peninsula-design-ideas-dining-area-12.jpg

http://nestdesignsllc.com/wp-content/uploads/2012/04/Spring-Valley-Kitchen-web3.jpg

Change the overhead light fixture, perhaps to a modern ceiling fan with light, and add a bar/billiard table style rectangle stained glass light over the peninsula. You may need to leave the overhead trim above the cabinets over the peninsula and add a "ceiling" to the bottom of it in order to do this.

Add some decoration to the wide wood top board above the overhead cabinets that remain. Maybe pressed metal birds on a wire or some really interesting trivets. Add some stained glass sun catchers to the window.

Paint just the soffit. New light fixture for family room and kitchen. New cabinet hardware. Install backsplash - peel and stick would eliminate the labor cost.

how tight is your tight budget? will it stretch to accommodate new counters?

what about flooring? and of course......who is doing the work? ideas are limitless and it's depressing to have great ones that you can't implement. you might find this easier to commit to an amount and have us offer suggestions of the best way to spend it.

new laminate counters get pricier and trickier with an angled cabinet like you have, but removing the peninsula cabinets upper and lower and extending them along the wall to the archway will drastically enlarge your work area and leave room for an island.

And turn the peninsula into a breakfast bar.

I love the idea of updating a space and working with what you have. It takes much more creativity to 'fix' an existing space than it does to build a new one.

Have fun with the countertops and a new faucet and door pulls. When you add new bar stools, you'll have a whole new room.