I'm following this b/c we are having the same dilemma. I'd lean towards #1 simply b/c the fireplace is likely your room's focal point, so you'll want your furniture arranged around that rather than around a tv in location # 2. Maybe someone else can weigh in with more detailed advice!

My concern with location 2 is foot traffic and glare from the window. And location 1, well, a corner is not as ideal as a flat wall.

Corner one would have less reflection.

I just wrote about having the same room and I liked the tv in area#2. When I first saw our house the previous owner had the tv in area #1 and I felt like it competed with and took attention away from the fireplace, so I liked area#2. I have a sectional that goes along the wall of the breakfast area and partly under the big window of the family room. I have a large coffee table in front of that and I have two chairs that flanking the fireplace. When you look in the family room from the kitchen you don't even notice the TV and we have a pretty large one.

You are correct about TVs over fireplaces being too high. Ideally, the TV should be placed where the middle of the screen is level with your eyes. Sit where you will watch TV. Have someone measure from your eye level to the floor. This measurement is the optimum height for the middle of the TV. This is not a hard rule, though. Some sites I visited recommended eye level be at the bottom 1/3 of the screen, which makes more sense for a large TV.

I favor position 1, but I worry about late afternoon sun coming in through the window seat area. It wouldn't create glare on the screen but could be an annoyance to viewers having to shade their eyes. Set your TV on a table for a couple of weeks to see if there is an issue. Of course, blinds or shades can correct any problem with that.

Position 2 seems like everyone's back would be to the TV. Even if you can arrange the furniture so most seating faces the TV or can be turned as needed, you are going to need at least a 60" set. Optimum distance for that size TV is between 7. 5 and 15 ft. Take whatever screen size you have and divide it by 8 for closest seating and 4 for farthest seating.

Why not choose a linear fireplace much lower to the floor and then the T.V above or IMO better yet the fireplace in the LR and none in the FR.

I would suggest that Option #2 is best. Option #1 is going to really limit your furniture layout options. Option #2 leaves the half wall and window seat wall for furniture, and you could always float another chair to the left of the fireplace. It will really allow your fireplace to be a true focal point as you enter the space. You can handle any glare issues with appropriate window treatments. Your concerns about foot traffic are also very valid, but life is full of compromises; and so is decorating!