I would ignore the picture rail and hang my curtains up high. It looks like the picture rail is painted the same color as the wall, so someone was already trying to cover it up!

your Window is in style as is with the blinds only. what type of curtains and rod do you have in mind

Yes I don’t use the rails so didn’t want them to make the ceilings look lower and just painted them! Still like the detail but softer to the eye. And I was thinking about doing something easy to ignore, like this simple d rod, but could also do something more pronounced!

I'd get RID of the picture rail.

I would just hang it a few inches above the window. I've never heard of hanging rods even with a picture rail, especially since it can also be below the top of the window. Personally, I'd never mount a rod on a window frame. Since the rail is even with the frame, there will only be two horizontal lines.

So I can’t take down the molding so I think I’ll try and basically extend the window so I hang them just a bit above and a bit outside of the frame?

Hang the rod about halfway between the ceiling and the top of your window frame. You can adjust the height slightly to be sure the bottom of the drapes just hit the floor. You need to extend the rod more than "a bit" outside the frame to accommodate the panels, so they can be pushed back out of the window when fully open.

You might consider just a long swag with your blinds and hang it on the window frame.

https://www.touchofclass.com/hellina-long-swag-valance-pair-80-x-63/p/R491-006/