I REALLY DONT LIKE THE FIRE PLACE IT MAKES THE PLACE CROWDED AND COARS. I WOULD PREFER TO TAKE OFF TWO SMALL PALCES AROUND THE HEATER . AND MAKE ALL ONE. AND THE JUST AGREE WITH THE FLOOR UNDER THE HEATHER. AND SOME NICE COVERAGE WITH AROUND THE HEATHER THAT MIGHT BLOCKS OR OTHER SYNTHETICS NOT INFLUENCED BY FIREOR HEAT. ALSO SOME LIGHTS THAT SHOWS COLOUR OF FIRE INFRONT OF FIRE PLACE. BUT NOT THE FIRE

Perhaps white wash the paneling? The carpet looks like it could use a good cleaning.

I would remove the wood from the wall. I would also paint your trim white. If you want to keep carpet, get something new that is neutral, but not the sculpted look. I agree that the fireplace is information overload, it is very cluttered looking. Do you need the cabinets on either side of it? If not, remove them.

I would take the wood off the wall and hardwood on the floor. If you change the sides of the fireplace, the bricks could look ok. bright colors on the walls

In the short term, paint the wood paneling.
Are the bookcases/gun cabinet flanking the fireplace staying or going? That wall is noisy with so much mismatched distraction going on. But maybe the cabinets are going with the previous owner and the question will be different once they are missing.

I can see why you bought this home with all this potential. If it were mine, I would remove the built-ins either side of the fireplace, fill in the arches on the fireplace to square them off and render and plaster the entire fireplace (something like the example below). I would replace the built ins with some cabinets below (everyone could use more storage) and simple, less commanding shelving above. Is there hardwood flooring under that carpet? If not I'd suggest putting some in. If possible, remove the wood panelling and place your tv where the fish hangs on the wall. http://houzz.com/photos/1971182
Congratulations on your new home.

Well, in it's heyday (1980) this room would have been a standout. Boy, but now, I know what you're dealing with. I had that type of wall torn out of a house we bought in 1987. This type of design looks dated SO fast.

I always try to think of the least expensive, but most effective way to update, and use what you have, rather than trying to make it something it's not, and have it end up looking like you tried to cover it up, spent a lot of time and money, and it is not significant to justify the expense, since you are dealing with a LOT of wall, a LOT of brick, a LOT of floor. As I said, they did a good job back then, and even have the molding matching, which unfortunately, is even more dating, and more work.

Another consideration is the fireplace, which is not attractive, but comes in handy in the winter, or a power-outage, if it's gas. And it is so prominent.

I see stereo components in one of the cabinets, but if you could move them, and put some drywall up, it would look a lot better. It's not just that it's more wood, it's the fussiness of the cabinets, also. With all the design elements of the fireplace, you need to remove almost every accessory.

If you can remove the carpet, that would be great, even if there is more wood underneath. Also, if that is a popcorn ceiling, that needs to go. I had one, and I had a painters ladder, with a shelf where I had a big plastic bin, and I would us a spray water bottle, and spray and scrape into the bin, It looked thick, but it was less than 1/4 inch, and it came of easily. But if you don't have the ladder with the bin, and it drops on the floor, it's a real mess!

Paint the window trim white, and paint the room a richer color, grey blue, taupe with no brown.

You could put a wash on the wood wall, but I really think you should bite the bullet and remove it. It would unbelievably brighten up and modernize the room

Then if you add some large fireplace accessories, like a beautiful wood bin, tools, etc. add some white bookcases with molding that makes them look built in, and not add a lot of little things, the room would look really nice. It's hard to deal with two very large architectural issues. Would love to see it if you make changes.

Well, You only had one comment when I started, then had to fix dinner! I guess there is almost a unanimous opinion about the bookcases. That makes me feel better. Go for it!.

The wood will be ok if you either whitewash or paint it off-white.
The fireplace... looks like somd kind of heatolater arrangement with the arches. But no matter, sledgehammer it.
It's taking up way too much space for what it's giving back to the room. And square off that arched doorway; were these people angle-averse?
Don't know what to say about the cabinets either side of the fireplace... if they are still there when you move in, at least you have kindling.
But removing these things will not be a small job, as it looks like they laid in extra brick for thermal mass, or some other such 80's idea (IIRC).

These are all excellent, thoughtful suggestions - thanks so much for the feedback! The cabinets are built in but we intend to remove them and replace them with some kind of simple, clean-looking storage that will 'lighten up' the space. As for that wood wall - sheesh! We're on a pretty tight budget (who isn't these days?) and are expecting our first baby in a 1.5 months so we might take the easier road for now and either white-wash or paint it a nice light colour and consider ripping it off in the future when things have settled down a bit. We're going to be replacing the current propane heater (seen in photo) with a woodstove but will likely try to slim down all of that brick to something 'cleaner' and 'lighter' looking. For now we'll just be steam cleaning that carpet but hope to replace it with some type of hardwood or laminate flooring and throw in a nice area rug to keep it cozy. I love the light fixture suggestions - those gold/brass art deco type ones are very dated! I'll be sure to post pictures to show the transformation. Cheers!