Oh btw baseboard radiators will be all gone :)

of course do both.

Doesn’t feel like you would have much dining space if you entertain. Have you thought about using the living room as a dining room? That would give you more options for adding the bath, closet, reading niche and casual dining.

You have a very nice room! I don't think you would have to change much to incorporate a reading nook. You existing bay seems like it would be the perfect place. Since the window sills are low I wouldn't suggest creating any sort of buit-in. Instead I would place a chair and perhaps a chaise lounge on either side of the door.

I don’t think you have enough space to turn the closet into a powder room, add another closet somewhere, expand the kitchen, add a breakfast nook, and add a reading nook.

If you take down walls and do an island or peninsula, you will likely end up with a casual counter eating spot, making a breakfast nook redundant in a townhouse.

Expanding the kitchen will remove square footage from either the dining room, living room, or both. What direction does the window end of the living room face? Is the living room your main tv viewing area, or do you have a finished basement? Kids? Do you consider this a starter home, or are you good to live there 10 years or more?

Your kitchen plans will dictate how much space is left for your other wishes. Since it’s a townhome, do you have neighbors who have done renovations that you can look at?