Would it close off the room too much if a couch/loveseat was placed directly facing the TV? Should the seating in front of the large wall be pulled away from the wall?

Couple of thoughts. Try your couch in front of the windows and it may help you to decide on the pieces of furniture based on that set up. I think your couch is fine to tell you the truth and would only block the view from its height down - which would mean missing seeing the back of your outside furniture and I would add roman blinds. You could even add a console behind, so couch is not right up against the window. Add a bookcase/tv in the alcove (which is perfect for one) and you'll get storage with closed-in cabinets and you could place your family photos on the shelves and add art over fireplace. Your single chair (and you could add an ottoman) in either corner near fireplace and add your floor lamp behind. Instead of spending the money on a couch, I think art, coffee table, bookcase, console and pillows would be money well spent and down the road you could think about the seating. In regards to color, since it's an open floor plan, consider what you have in the next room and compliment and wait to paint if you are going to be purchasing new furniture and accessories.

I don't have new furniture recommendations but for the time being, try turning the chest under the HVAC grill 90 degrees to the right.

@Maureen I like that idea of turning the couch and using the big wall for storage. The chaise is too long and would partially block the fireplace if I placed it in front of the window. The room next to this is the kitchen which has the same color paint and oak cabinets. Its going to be overhauled as well.

If you like the couch under the window and will be getting new furniture..maybe a sectional with the chaise or section at this end would work. With young children and the wear and tear on this room, I would just keep your couch for now. I had another thought, maybe if you placed the couch facing the fireplace with bookcases on either side for storage and also took advantage of the alcove. You could add 2 sets of low cubbies for toys (add baskets for neater storage) and add a modern collage of your family photos. These cubbies can be easily be moved to bedrooms or a mud room, etc. when you no longer require and then you could add a console table instead with a comfy chair next to it on an angle near the fireplace corner.