Do you mean in the same spot as the 33" tv?

@rob333 - Yes rob...in the same place, but its not sufficient.. Need ideas to make up something over that - Wood works

Do you want to close the hole? You could add a wood frame and then screw on drywall (then tape and joint compound over the gap that's left) to cover up the hole, it wouldn't be hard. That's what I'd do. Truly, it's really easy.

Not really a decorating question or solution, but the simplest thing would appear to be using an articulating mount (the kind that pulls out and allows you to angle the TV) and just pull it out a bit to clear the wall. The next would be covering the opening -- but you will have to have something behind that cover for mounting the TV -- studs or better, or the TV will fall.

I'd put the tv on a stand in front of the niche and if you wanted, you could cover the niche with a tapestry or curtain.

Just use an articulating mount, and place the TV in front of the niche.

Like errant said, use an articulating mount placed in the recess. The TV will then be flush with the wall. The ariculating mount will allow you to pull out the TV a bit further out for better viewing, and depending on the mount, you might also be able to swivel and tilt the TV, for even more viewing options.

You could then make some panels with black speaker cloth and mount them above and below the TV to make one whole TV/audio wall. Hinge the panels on one side and you can hide stuff in the recessed shelves, behind the speaker cloth, and still be able to access them.