You need 42" all the way around the island in major working / walking areas. I cheat a little on one side of mine because it is an area that is neither a work area or walkway. From just the pics you have posted, you would want to move the kitchen a few feet into the living area. You will really need to bring good measurements and talk to the kitchen designer where ever you are looking at cabinets. The home is over all warm toned and will look best with stained or white painted cabinets. Cool grays and warm wood tones look drab together.

You will lose counter space by adding an island and complicate your circulation in the kitchen, especially with more than one person in that small space.

My advice is not to do it. If you need further help, talk to a kitchen designer or interior designer with kitchen experience.

I usually prefer stained wood cabinets, but I think in your home, creamy white cabinets would look great. I would get rid of that pot hanging space (was there a florescent light there?)

I think the peninsula works well in your kitchen.

You have a wonderful large kitchen window!

we thought about tearing down the cabinets on this wall and placing the fridge against the wall where the bar stools are when placing an island in to give it enough room to walk around and such

If you want any kind of help on the island question, you have to post a diagram of your space with labeled dimensions. No one can tell you if an island will work unless they have those dimensions.

I have a small kitchen and dinette area that used to have a peninsula separating them...hated that thing for 30+ years. My biggest issues were the way it cut off the eating area, and the peninsula counter space was across the kitchen from where I wanted to prep.. I was able to ditch the peninsula and incorporate an island in a recent remodel. My kitchen is so much more efficient and so is my storage space.

why don't you remove that low ceiling and take it up to match the adjoining room? then remove all the popcorn from the ceiling. (if home built before 1980 get it tested). taking up that ceiling will look so much better. then you can do taller cabinets

do you like the paneling? if so, keep or paint?

since you want a major reno with an island, etc, you really should hire a kitchen designer for this one. it will be well worth the cost. they can show you diff layouts you may not think you can do. they can also meld the looks for both you and husband.

Do not do gray cabinets. Gray has been so trendy and on its way out now, soon to take its place behind gold shag carpet. Cabinets are pricey and I think you’d regret it. If you have to have some gray, do paint which is easily changed.

IMO, of course.

Just from eyeballing it, it doesn't look large enough for an island, even if you move the kitchen out a couple feet. And unless a kitchen is large enough, an island just is a barrier you have to walk around to do everything.

I also agree with Littlebug's post above. Gray is over, and also a quite hard color to get exactly right so that everything (counters, walls, floors) goes together nicely. Even if you don't care that the gray trend is over, be careful with choosing it, unless you are confident you have a great eye for color.