it's a pretty space, but I don't see anything 'moden rustic' about it ... the white cabinets with black & white granite, bright yellow walls, white crown moulding & atrium doors ...

the architecture of the house is saying more "transitional" to me.

Remove the ceiling fan and that light immediately. Repaint your ceiling a light color as it looks like it's too low with that dark paint. Form an "L" shape with furniture. A sectional would work. For the toys, consider trunks or chests for stashing. That can go on the opposite wall.

What else will you be doing in this room? Will it function as an office or dining area as well? Will you be using both sets of french doors to enter and exit? If so, will have to think of traffic flow. The same with that entrance in the 2nd photo. Don't want to run straight into a couch if coming from a main entrance.

Thank you for the comments! we just moved in a week ago, so we have not done a single thing to the house yet--the yellow walls will go asap, and although i do want to go with the architecture of the house, i am trying to figure out how to add our own character to the space (like, for example, all the light fixtures are pretty, but they are all the same chrome with white frosted glass, which says "no character" to me)

The room will function mostly as casual family living, and maybe an office space..The room behind it is another more formal living room and dining room.

I only want to use the french doors closest to the kitchen to enter and exit. I have been kind of pretending that the other doors are not there!

I am concerned about the open entrance behind the couch--that is a very main entrance to the space, which is partly why I don't know what to do with it!

What would you replace the ceiling fan with?

First things first; re-paint the ceiling either white or offwhite! It will make the room appear brighter instead of dark and dingy. Also if you like the rustic look I would paint the fire place a darker richer brown. A U-shaped sectional would look nice and would make the area look more intimate and closed off considering its open to the kitchen. Add a rustic coffee table, maybe a worn-looking trunk? Paint the walls a different color to match the whole look of the room. Hope my ideas help! :)

Thank you! Yes I think i would want to paint the ceiling--it's lighter in real life than in the pictures, but i still feel like it's not neutral enough or light enough. it kind of cramps the rest of my color style! Unfortunately, that color is on the ceiling of ALL 2300 square feet of the house. So I feel like if I paint one room, I at least have to paint all the rest of the open space. ahh! :)