I agree with the above comment; stacked stone all the way up. I feel the tile surrounding the fireplace cheapens the look; also the mantle now is too thin. A thick, solid piece of wood for the mantel like in the picture will dress up the wall. The way I see it, the TV should go in a different spot because it throws everything off where it is now. I see a door(?) on the left which may be blocked by a table. Can you put up other pictures from different angles to show the other walls. Maybe then a different and better floor arrangement could be recommended.

Wow, first thing I thought was stone all the way up too!

Attached are some other angles of the room. There is a door to our deck that is blocked by the table right now because we mounted our TV to see if we liked it on that wall - the final design will not have anything blocking that door. All the furniture in the room is being replaced as is the carpeting. We are thinking about removing the hearth. Thanks for all your comments.

Thanks for posting more photos!! Ok, here's what I think. Move the TV to the wall where the two recliners are. Use the table that is blocking the entry door as the entertainment center. The large couch could be in front of the TV. IF it fits, put a narrow table behind the couch. The two recliners might go (if they don't block flow), to the left of the couch with the small table in between (without the lamp). I really like the clock!! Good luck.

If you were to lower your mantel for the tv...it might look a little odd being so low. What if you raise the tv a bit.

I think you need a hearth and a substantial mantel especially if you are taking the fireplace to the ceiling.
Think about your options for placing your TV elsewhere. Then you won't have the dilemma of the mantel height vs TV viewing.
I've attached a photo as inspiration. Good luck!
http://houzz.com/photos/2719865

So glad we went to the ceiling with the stone:). Thanks for all your suggestions. Now just picking out paint and carpet and furniture...