I love small homes and their challenges. My first instinct is to swap the kitchen and the dining area so traffic to the backyard and stairs doesn't cut through your workspace. Maybe like this. I was thinking backing the sink cabinets with shallow cabinets for more storage and then abutting a table to those cabinets.

A quick and easy rearrangement, but might not meet your needs--you could switch the range with the cabinet beside it, and have a pass-through on each side:

shanghaimom's pass-through:

Not sure how easily you can re-situate things. Can you lengthen the deck?

In the picture below, I've moved the patio door over to about where the window was (probably a little further) and moved the window over to where the patio door was.

If you are able to open up the wall but it is a load bearing wall, you could open it up, shorten it to a knee wall so that you still have wall space to place the couch against, but see into the living room and also have an area for a table without crowding the stairway. You could drop a post at the knee wall somewhere which would allow a beam to be put across the opening. If it is a load bearing wall there should also be support in the basement(?). Having a post for the beam to rest on would keep the beam from being too bulky and keep the head space higher. You could also move the desk over to where the fridge was and open up the pantry from the kitchen side. It's hard to say without knowing certain information though.

I took Mama's plan and tried it in a different direction.

First I rearranged your living room/dining room furniture so it works better. Furniture should almost never line up against the walls. This way now you can have a direct view of the tv and people can sit and listen as the pianist plays.

This gave more room for your dining table, without having to walk around your living room to have food.

I opened up the pass through a bit more. It would require a small header at the top I think but mostly you're still keeping the support wall.

I switched the sink to the passthrough wall, and added a counter height breakfast bar. This will allow you to look out the window while having a meal or snack. You'll have room for your dishes on the side with the sink and DW and then the fridge and stove are on either side of the window.

Between sink and old pantry you have upper cabinets and drawers and on the side of the dishwasher you can have just drawers or an upper cabinet too. Between the fridge and stove is drawers and to the right of the stove is narrow drawers.

So I went and spent some more of your money, ;) and came up with an island, which you'd mentioned:

In this plan the DW is out of the prep zone, and can be loaded or unloaded to drawers in the island, without interfering with prep and cooking. The range is in a protected area, but close to fridge--you just need to make sure that the vent won't blast anyone on the deck.

Fridge and MW are easily accessed by anyone coming from the hall and LR. There is a traffic path from back door and basement, which does not interfere with cooking. The current pantry is easier to access, and there is a new, shallower pantry, turned 90° for easy access. Oh, and I enlarged the deck, and gave you some flowers. ;)

GW discussions--dishes in drawers

You might also consider a corner range, which would give you more prep space, but would limit upper cabinets on the fridge wall:

I drew the last two plans on a graph, so it looks as if you have room for three seats on the island, and 48" of prep space in either plan. There would be more storage without the corner range. (But I think that would look really nice!)