Two sofas would work in this space. For the $4K budget, two slipcovered Ikea sofas and their coffee/lamp tables will work for a few years.

I would do two large couches. However, since you have a large open wall (the angel-painting wall) I would mount the television there. The TV currently hung above the fireplace seems very high. I would do one couch facing the fireplace and the other facing the newly located TV wall. Then, add a console table, beneath mounted TV, with doors for additional toy storage.

Hope this helps and congratulations on the new home!

You have cherubs! Make a u shape with two sofas (not a loveseat) and 2 chairs. Put a console with large art over it on the cherub wall.

Furniture from Macy's:

Two sofas (not sectional) and two chairs...with tables and lamps will be a great start...TV on cherubs wall,yes, and with a storage piece underneath the TV. As the mother of twins, I can say have fun with them, treat them as individuals and they grow up much too fast.

Thanks everyone for the comments! We recently moved the tv to above the fireplace to open up another wall for furniture and get the AV equipment away from the children. The TV is on a "mantle mount", so it comes down 3 feet when we are watching it...otherwise I would agree that it is too high. I think I am leaning towards the two couches like many of you suggested, now I just need to figure out if I want to do club chairs or leather chairs.