Looks like it needs some blue in the room.

Get some cute decals for after you paint, they make cute ones at Target for your walls , easy to apply & remove in my experience

Ikea storage does wonder for trains and down the road Lego too. We have it and love it. Keeps if all hidden away but still accessible to kids. I like prints on the wall of things the kids like. For example my seven year old is really into star wars so he has a Luke Skywalker framed print in his room. It looks like your playroom is a distinct room? If so that would work. If not and its a part of the house more do kid artwork or kid pictures

I'd do a bright yellow on the walls.

The knee jerk response is to grab primary paint and make this space kiddy land! Nothing wrong with that except kids grow up and their taste changes. I'd go with a design that is a bit neutral and go with family photos in black and white with colorful frames. Another wall could have framed kid art work. Yes to cubby storage like in the first photo. But buy storage tubs. One kind of toy in each tub. Kept clean up a snap. Even a toddler can find to Lego bucket and put Legos away!

I think you don't need to paint, unless you really want to. You could bring in colour other ways to liven up the room. I suggest bringing in a variety of colours in three different ways or areas, and would go with a pillows, window coverings, and the picture frames like Mia suggested above. You could put some of the kids artwork on display in them too. Be sure to bring in different patterns too, you can keep the orange, just add to them. Here is an example of lots of colourful pillows on a sectional.

I could only add one photo at a time, but wanted to show you this one too because a Roman blind in this style could cover the arch you don't like. Also notice how colour is added in different areas but floor and walls are still neutral.

Do really think the problem is the color of the walls? Or lack of the right pillow?

What great advice! Based on these comments I think I'll still paint - maybe blue but with a darker accent color on the back wall. Do you think the blue and green couch go together though? I'm definitely adding storage and have gotten some great ideas here. And I like the idea of getting more pillows for the couch in various colors. The idea of a Roman shade is great!!

What about a window covering for the skylight? It opens so the covering would need to be affixed to the skylight itself. Maybe just a honeycomb shade in white to match the ceiling? Or should the sloped ceiling be painted, too?

The first thing is STORAGE. I would do roman shades on the window and of course cordless. I would get fun pillows for the sofa paint one wall any color you like add a chalk board to a space along the knee wall

It's hard to tell colours from a monitor, but the picture below resembles your sectional I think, and there is a light blue accent wall. If you look closely the accent wall colour is pulled from a stripe in one of the pillows, which is a good tip. If for example you did a Roman blind over the big window in a stripe or pattern fabric, you could pull the accent wall colour from that. First get some toy storage pieces, then pick window coverings and pillows, and lastly pick paint.

Curtains from Target. Pillows from Crate & Barrel.