No, it looks odd and I think it gives me mental blocks just looking at it. I'm not particularly good at patching sheet rock in with existing sheet rock and getting the texture to map. I'm thinking of a white-wooden mantel replacement but how high? What design with a window above it?

Do a stone or reclaimed wood insert.

How high would you take it? If partial, what would be a good way to dead-end it? Perhaps a matching mantle... sort of like a cap stone?

Agree to totally remove that thing above the mantel but also remove the mantel. Too clunky and no personality.

Just take the new surround up as high you would like.

I agree. remove the thing above the mantel. Or, fur the whole thing out, remove the mantel, and take it up to the crown thing (remove that too). Picture a very long rectangle, similar to the pic lee lee posted.

Or, remove the arch thing and just take your stone or tile up above the mantel. you would have to worry about drywall if you remove that thing carefully.