I love your ideas for furniture and switching the couch, but would it look as weird as I'm imagining with the TV sticking up higher than the pony wall? The height of the wall is 35"...our TV is 25" tall.

tricky layout for sure! how would you feel about drywalling over the bookshelf niche on the fireplace wall and mounting the tv there? Either beside the FP (I can't tell if there is enough room) or above it. Then you could do seating along the long wall and in front of the window (Sectional or sofa/loveseat) and not impede your traffic flow from the front door through to the kitchen/dining.

Hmmm...that’s an interesting idea...maybe a bit more than my husband wants to bite off at this time, but I love it. It might even work out that if we drywall over the bookcase on the living room side, we could switch the built in bookshelf over to the dining room side. It would be a fun place to display serving dishes.

I should add there is a hallway on the other side of the staircase...you can’t really see it in any of the pictures. Our daughter’s room is off that hallway, and you can get to the kitchen that way too.

Some thoughts, but first show the floor color. Say bye bye to most everything in the room.

--Paint the entire space a beautiful warmish white so it all flows together and lightens the space. It's very chopped up now.

--If you don't want to move cable connections, then follow this layout. Get a comfortable but not too oversized sofa. This is the "Lounge" from Crate and Barrel in a neutral taupe-tweed. Put it on the wall where you have a sofa now.

--Yes, get two recliners not too oversized. You can have swivels installed underneath them. Put one in front of the sliding door and the other facing it.

--Anchor the space with a cheerful patterned rug something like this pattern but not round and large enough to fill most of the living area.

--Add a round coffee table reachable from sofa and the two facing chairs:

--Get long, not-too-high media/bookcase shelving with bins or drawers below for your children's toys. The shelving should run all the way across the wall. You can get two sets of shelving, if needed say, at Ikea. Put the TV on the wall or on the shelving itself.

--Surround the TV with large art pieces.

P.S. Your current coffee table would work.

--Plain floor-to-ceiling curtains the same as the wall color could frame the windows. Just put big decorative hooks to the side to hold them back until the kids get old enough not to pull on them.

Also consider putting a large cheerful art work on the staircase wall.

More art for the staircase wall:

@decoenthusiast-I never would hav considered mounting the tv on the wall like that! With two active kids, I don’t know that would work now, but it’s definitely an idea to file away for the future.

@housegal200–thanks for these ideas! I love the idea of a long and low bookcase. What kind of artwork would look good around the tv? Wouldn’t it get too busy?

My cousins always put their Christmas tree inside a playpen and kids never bothered it. Yours are old enough to train away from the TV. Just put a small throw rug out in front of it and make a game out of staying off the rug with whatever reward or lack of your kids respond to best; TV time might be an appropriate tool to use. They'll naturally learn to avoid that area over time and you can eventually remove the rug.

Take a look at my TV console Ideabook. Therre are lots of ways to go with art depending on your taste. You can do one large art work, a few pieces, or a gallery wall, floating shelves. Just find the right long, low cabinet/shelving first and get your TV set up first, then see how you want to do the wall.

Paint the whole space in a light color....not gray or beige, maybe a pale blue or green. The dark blue sucks all the light out of the room. Paint any trim white semi-gloss enamel for easy cleanup.
There is no color in your furniture, and at some point when the kids are older, you will get some new furniture. When you do, avoid the huge overstuffed, rolled-arm heavy-looking seating and look for narrow arms, tailored cushions, less bulk.
You need to add lighting...table lamps, floor lamps, and brighter bulbs.
Art of some sort will add color up at eye level: a few simply-framed posters or prints will work.
If the kids pull on the curtains, get roll-up window shades for nighttime privacy. Leave the windows uncovered during the day.
The kids will grow up. Right now they are pulling, climbing and putting messy fingers everywhere. Give them a couple of large baskets and make a game out of putting toys in them once they start to imitate you picking up the room.

Amanda, your biggest concern seems to be the lack of light in this room. You might want to consider to change the current window and replace it with a floor to ceiling window. There is another alternative to allow some extra light to come in. I noticed, you have a vaulted ceiling. Can something like this work for you maybe. Skylights would definitely allow natural lights in.

Your second concern about the couch. I would use only one couch, and chairs (one recliner). A good idea is to go airy with the legs of the furniture. Instead of a recliner, you can go with a wingchair and ottoman.

3) wall paint: if you are too chicken to pick a colour, just paint the walls white and play around with colorful artwork. Definitely paint that blue wall! :)

4) I would put oversized credenzas along the blue wall, a proper gallery wall on the opposite wall. I would also go oversized and colorful with the art over the credenzas. The TV set seems to me to also be a bit too small for this space. You can add oversized table lamps and floor lamps every here and there. A well placed mirror can reflect back the light as well. You can also place some faux plants (big ones)

Another option to increase daylight might be the installation of some solartubes.

https://www.houzz.com/products/solatube-installs-prvw-vr~91763081

If you like the yellow, I would paint it on the large wall and clad the entire fireplace with the same brick or stacked stone. For furniture arrangement move bookshelf to left of window and put matching narrow chest or shelf on right of window to define entry, mirror above credenza. Center tv on large wall, couch against half wall and facing tv. Get two tailored recliners (not too big) to put in front of window with a table and lamp between them. The long storage credenza under tv would be great, with an occasional chair between tv and fireplace. I say 2 recliners, because you and hubby will both want one. Also an ottoman for a coffee table.

Oops, I meant mirror over entry table/shelf. Would like to see your results.