I'd start with the obvious - get rid of the drapes, pictures, bookcases, fireplace surround and everything that seems to be from the previous owner (right?). Then, tear out the paneling; I assume it is the cheap fake-wood sheet paneling that was popular in the '60s. Remove the popcorn ceiling (it looks like a popcorn ceiling). While you have everything opened up, decide if you need additional electrical receptacles, a TV hook-up in the wall somewhere for a wall-mounted TV, lights, etc. You'll need to figure out how you're going to arrange the furniture in the room before putting in any additional electrical infrastructure. Also, consider installing pocket doors for the two doors into the room; they're relatively easy to put in when the walls are opened up and are better than swinging doors or "barn" doors. What's behind the bookcases? What you do with the brick wall and raised hearth, and how you set the room up depends on your kids' decorating style and life style. Perhaps some pros can weigh in on what to do with the brick wall etc. After everything is decided, then sheetrock, paint, etc. Looks like a lot of fun!