I think the concept of a second floor 'sleeping porch' is divine when they don't leak.

bump

Bump! Still looking for help :)

The question is: should I build out a room addition that's just the balcony, preserving the view for everyone to enjoy OR should I turn the loft and balcony into one room with a bathroom?

Neither.

I would either restore it to the original just a balcony, no room addition. This will preserve the roof lines which will be lovely and perfect.

Likely, the weigh bearing balcony structure as built is not sufficient to support a full fledged room addition with solid walls, windows and a roof (which looks like heavy tile or concrete tiles). And, the exterior wall with the French doors is a bearing wall which likely can't be opened up more than it already is. Which pretty much rules out turning the loft and balcony into one room.

Two rooms will result in one room that is going to be long and very narrow. Awkward dimensions. What would you use it for? How would you arrange furnishings?

The view. The view is still there. How much does it really matter? Being on the second floor and in the private area of the house? AND on the front/ public side of the house? How much exposure do you want up there?

What 'I' would do is rip off the greenhouse and put a shed roof over the porch, using the same roofing tiles as is on the house. With the same roof pitch as the roof on the first level.` To be code compliant, I would suppose that the French doors would have to be replaced with windows. You may also need a shorter opening in order to tie the porch roof to the house.

Just a thought, but returning it to a balcony will present challenges to keeping the porch & framing underneath dry. A leaky balcony may have been what drove sticking the greenhouse up there in the first place.

I know that your post is pretty old, but I would suggest that you consult an architect to see what your local building codes will allow unless you have people to do the work that will disregard codes. 

I'm redoing a similar two space. If money and codes are not an issue, Id build a two story sun room and use balconies on the second level that open into the two story sunroom.