I would replace both sofa and chair with an apartment sized sectional and two small scale swivel chairs. Steer clear of black or brown leather and avoid a chaise on the sofa. Put a small table under the mirror at the stairs. Consider painting the FP and mantel white like your trim to minimize the FP. I don't think changing the hearth tiles to a lighter color will be much of a problem either. Spray paint the brass firescreen with heat proof matte black paint. Hang stationary panels at each end of the windows (floor to ceiling) and add fabric or fiber roman shades underneath them. Lighten up on your art pieces - they are all too dark. I'd advise a glass coffee table to visually open the space but you have toddlers, so you might get a soft round hassock instead. You'll need a table between the swivel chairs too. You have a start on the stairwell art, just expand and lighten the frames.

Its really hard to tell from the photos but its almost as if you need two seating areas. One on front of the window and another in front of the fireplace. However, with the larger furniture and all of it matching it isnt giving you the desired effect. You might want to post a floor plan, its really hard to tell what the room is like without that.