I really think the pine should be changed or painted over, but of course it is a matter of personal taste. Here is an example of painted wood panels http://houzz.com/photos/98452
A soft cream or grey color would really change the feeling in this room to something more fresh. What is the purpose of the room?

On the other hand you need to decide the use of the second room, now it looks like you just put extra things in there that you dont have the extra space for elsewhere.
Once you decide what you want it to be, ie exercise room, then you will know if you want it to be visible from the family room or not, as it is now...
In both rooms try to think of what furniture you would keep or get rid of, ie the couch, the chair, at least get a feeling of decluttering of larger items and see what you have left to work with.

Decluttering and changing the shelves may cause some short term mess but it shouldn't affect your bank account. I like painted paneling - as it makes the room lighter and brighter but that is a big job and you seem a little uncertain about tackling a big job. Plus this does look like a light glossy paneling. So - collect the dog toys into an attractive basket and move the dog bed to the side of the fireplace instead of in front of it. Change the 3 stars on the wall to biggest one on top and a straight line down to smallest, put a brighter afghan on the sofa. Then work on the shelves and fireplace - I would put all the books with their bindings (not their paper edges) facing the room. Unify the color of your accessories - you have a lot of white and green so keep those colors and take away anything not that color. Take off everything that is not a book or accessory - I see some bags and maybe some stuffed toys or some sort of cloth. The 2 trees and figurine on the mantel make it look Christmasy to me - I would remove them - try some big chunky candles in a green or white to go with your accessories on the shelves. Or move one of the bigger accessories there. Also, do you happen to have a bigger or brighter picture for above the mantel or a mirror to reflect light? Try switching some things around within your home to make this room more to your liking. You might like a bright area rug on the neutral carpet - and if you don't like it you can return it and it won't affect your bak account. But of course the pinball machine has to stay!!

I had darker knotty pine paneling in my living room. Went back and forth on whether or not to paint it. Finally decided to paint, it looked sooo much better!

I'm the pic they painted all the trim, doors and FP white, it brightens it up.

http://houzz.com/photos/1013726

Painted one color on wall darker on ceiling
http://houzz.com/photos/623427

Hi Debi, you might consider installing Bi Parting Doors in place of the sliding doors you have now. These doors would separate the rooms when closed but when opened would help join the two rooms together. See: http://rusticahardware.com/bi-parting-barn-door-hardware-system/