Nice propane or pellet insert, build a mantle and remove stonework if possible. gyproc all the walls and paint. I think I would also put a nice floor down.

You could make an ideabook and see if you can figure out what gets you warm ;)

http://www.houzz.com/photos/living/fireplace-

yowzers.. that paneling needs to be painted pronto! Other than that it should be pretty cool.

Yes panelling would look good painted but its going to open and close with the moisture content so be careful.!

what if you white washed the brick to make it more tonal? I think that would help for starters... get a mantel of some kind in there.... possibly rustic? go wood...
hmmm... built in book cases to hide the panneling and the slight curve to the fireplace.... cut out that bench portion under the paneling at the very least or put the book cases above and use the stone as the kick plate... but then that curve would stay....
lastly to fill up that big expanse of stone you could put in a bunch of floating shelves in ladder style and use it to display very bright vases, books, etc...

Close the stairs. Paint the stone and keep the wood. Or keep the stone and paint or replace the wood. And definately get rid of the gold trim (fireplace), paint it black! Last option is go retro, but my guess is you would not post a dilemma here then..

Definitely get a new fireplace insert or paint the brass. I would see if you can find a nice piece of reclaimed wood for a mantle and then paint or stain the paneling a deeper brown. Also, I would consider breaking out the hearth if possible and making the wall flat. If you can't do that, I would try and find a new material to cap the existing hearth in instead of the flagstone.

Demo all the existing rock and redo with a more modern stone and on a smaller scale. Agree with One Speciality on purchasing a new fireplace insert. (last pic os of an outdoor fireplace but would be great indoor as well...especially with long hearth. Fit length of your living room well.)

You have a small space with a lot of light and all that stone makes it look even smaller. Close the stairway, take all the stone and wood off the wall. Get rid of the outdated insert and put a newer one in with newer stones only about a 6' width. Make sure to put a nice mantel. Then paint the walls on both sides a light green color. Take out the stone seat also. Rip up the carpet and lay an oak hardwood floor.

An idea book would be something you can try...

I love the rock and wood. fire place insert is not good either paint black or replace. put down wood floors try to match the knotted pine in the wood but go straight from windows to the hearth I can't tell but the diag. on the left is slanted the oposite of the right? window treatments would be nice. adding a mantle would make a nice change too. centered over the insert. Paint the stair railings or replace them. painting is the cheaper route.

If you are in love with the retro style your home has, embrace it- just update it with some tweaking. If you dislike that decade then redo it. Redo the stair area, ideas below. Paint the wood a taupe color. Wood floors and the wall color a softer taupe. The pops of oranges, reds and greens in the accents.