Definite yes to the window treatments. Not sure what colors or patterns you like, so I will just throw out a few. Find two to three colors you like that work well together, one or two patterns that don't clash, and get the ball rolling.

To start with the windows, it doesn't look like you really need privacy shades, because this room faces your back yard, but drapery would truly help the lines of this room and give the comfy feel.

Painter's tape is your best friend. I would pull the seating a bit closer together for conversation and then layout a "rug" on the floor with the tape. I'd want the rug to sit under the front half of both sofas. The accent chair can sit on or off or partially both, but snugged closer to the FP. Stationary drapery panels hung over fabric or fiber roman shades are a great option. You can leave the top windows open or put motorized or mock romans there that don't open and close. The mirror above the FP is reflecting nothing beautiful or interesting, so I'd look for a piece of art more narrow than the firebox opening. The painter's tape can also help you visualize sizing for art, both at the FP and on walls. You are going to need some casegoods. Behind the large sofa put a sofa table and I'd suggest a secretary or other tall piece on that wall to counterbalance the FP opposite it. Will you watch TV in this room? If so, you can place it on the wall behind the loveseat and flip the love and chair. I'd want it wall mounted or sitting on the credenza. Either way you need the credenza and if there happens to be a closet on the other side of that wall, TV gear can go in there, out of sight. What are you thinking about color - looks pretty bland right now. Rug or art could determine a color direction for you.

Definitely need an area rug, but nothing with a pattern , keep it simple and durable. These are from Restoration Hardware. Pillows and throws are always a great way to add color and can be changed for the seasons.

Buy a patterned carpet that you love. This will be the colour palette for the room. Draperies always make a room feel warmer and friendlier, but keep them neutral so you can change the other decor later without spending a fortune to replace the drapes.
The mirror over the fireplace can be moved somewhere else. Use photos or artwork that you already own to add visual interest there.

It's okay to have your space be empty for awhile. It is an exciting time, and better to go slow and get something you love than to react too fast and get a mishmash.

You might enjoy one of my favorite blogs - younghouselove.com - they have (on a budget) done several houses and finally are in the house they hope to keep forever. As for art, it is really all around you - you can use coupons at Michaels or buy matching ikea frames and insert graphics from magazines, art calendars - search at yhl for the gallery stuff to see how that comes together over time and is a lot more meaningful when it represents places you have been and things you have done.

Looking around at living rooms here at houzz and saving them to an ideabook is another way to refine your preferences and discover color palettes that you really love. Start by saving anything that draws you and then go back and figure out what particular element you would like to incorporate into your space. Once you have trained your eye, you will see good quality storage pieces on craigslist that would be perfect for much less than retail.

One of the first suggestions I would make is to settle on a primary color tone you would like to use in the space and then go looking for fabrics in that color tone that particularly draw you to use as color inspiration. Get swatches, or buy 1/2 yard here and there at calico corners or beautifulfabric.com. You can start to lay them out together to see how to blend different shades of the same color, small prints and larger scale prints. This will help you see the color palette you hope to develop for when you purchase store bought things.
Sarah Richardson uses up to 14 fabrics in one space and favors the fresh traditional that I see in the small cues here.

Once you have a color plan, it is easier to execute - don't buy things at random or feel you need to fill the room up. Since the things you have now are neutral (an excellent strategy for major upholstery) you can go in almost any direction (yellow is probably out next to tan).

Finally, decoenthusiaste and kathleen make terrific points. A rug and a mantel art piece are great places for color inspiration that bring a lot to a room. Once you know what you love, you will be able to size and source something terrific.

Beautiful so far. =)

I would start with thinking about what colors you like. Go slow, choose one piece at a time and build up, less regrets than a bunch of fast purchases.

A focal piece of art would be a good idea to build on. You could also get a rug you really enjoy and build on that.

I really imagine blues and greens in your space, but it is so blank, you could literally go in any color direction and make it work.

Feel free to check out my work for inspiration.
http://angelina-vick.artistwebsites.com/

In particular, I can imagine The Float Series working well.
http://www.houzz.com/projects/336761/Float-Series

Pick a accent color. Yellow, orange, teal. All good then use in very small amounts around both rooms. Light over dining table needs more weight to it. And hang 36" from top of table. Remove mirror from over fireplace go round or sunburst 36" if rd go dark frame. Ck TJMax or Ikea, for deals. Also for pillows buy a few in accent color. On windows go floor to ceiling panels on ends only. Try black and white or gray, chevron print do dining too. Are rug 8 x11.in a graphic print. Ikea has good price also carry art. Go contemporary on both bold colors. Don't be afraid to mix up prints and design. Add a big coffee table in black Ikea square 24". Ikea has media, and wall units to cover big walls. Ikea has big art with Paris, London, New York. $49. Black and white would work really well. Hang very low. Add plants in corners in big pots add color pots to mantel one end only 3. Add items to coffee table in accent color. Add a bamboo shade in black under panels on windows for texture.

Add big palm to left of firepl. Move chairs in to side of sofa more. Group. That one chairs looks like a dining chair. Would replace with a print chair with accent color. Is a TV going here? You have a lot of tone on tone. That looks boring jazz it up.

Add a big New York sky line pic to dining wall. Get area rug 8x10 for under table color. Furn looks modern in living rm. but country in dining room. I would replace chairs if not in budget for new set. Pier one also Ikea has some deals. Pier One has high back leather in color. You could go dark and bigger on table.

Another alternative for your big walls could be decal art. It's less expensive and fills walls well. Tree ones seem especially classy. =)

http://www.allposters.com/-st/Botanical-Wall-Decals-Posters_c93416_.htm

That chair you have in living rm get another one and put on ends of dining table. Paint table black. Add 4 other chairs in a color.

Behind sofa add big London Underground pic Ikea. Center on wall drop so 36" from floor.

Now it's time for accessories! There are so many beautiful window treatments, table decor, lamps, and throw pillows out there to really pull the look together. You have a gorgeous room with a neutral palette so it should be fun! We have some amazing options at http://www.Purehome.com if you're interested!

I am thrilled with all of these suggestions! I have a few follow up questions now :)

1) It seems to be unanimous that I need window panels :) Where do I buy 12ft panels? Do I have to get them custom made? Also, Should I do panels in the breakfast room as well?

2) It was suggested to put a secretary on the wall behind the couch. It's hard to tell from the pictures I posted, but the wall behind the couch is actually part of the hallway. I attached another picture so maybe you can see it better. Would you still put a secretary there? Also, the picture shows the kind of awkward corner that's there as well. What can I do with that? A plant doesn't seem quite big enough.

3) No one has mentioned anything about end tables. Do I need them? Or would a sofa table with a couple of lamps on it work better?

You need a starting point. For me, that's usually art. Take a look at what Ikea has in their ready-to-hang department. It's the most affordable around, and if anything there floats your boat, it might be a starting point.

Or you could start with a rug if you find one you love.

I took a peek at your ideabooks and what popped out at me was that you seem to gravitate toward muted greens. So I muted some greens for you and mixed them with black and white.

Oh man, you can't leave all those gorgeous walls bare! You must have art before you have tables, or secretaries, or plants.

Don't put a desk on the wall behind the sofa. You could put a narrow sofa table behind the sofa. You probably also needs some lamps. And tables.

But first....must...fill...walls...

The room is very neutral so the possibilities for a rug are endless. You need to decide what style and mood you want to create in the rooms. Here are some options (Target) but it's really about personal preference.

This one is more contemporary.

For an inexpensive art project, you can take any picture you want to costco and have it made into a painting for a small cost. They run sales from time to time in their coupon booklet. As far as rugs go, I shop for quality rugs and then go to rugs direct online. I have also seen nice looking rugs at Fred Meyer. If you pay less your not stuck with them forever. I do love my couristan rugs, although now I am stuck with them for many of years. Since they are reds, it limits my remodel abilities.

Also, mirrors can be found at great prices. Ornate wall clocks for corner walls. One of my hobbies is buying beautiful ornate, golds mostly, frames from antique/2 nd hand stores and adding my own prints to them. I have purchased two large beautiful sunburst mirrors that cost me 14.00 & 20.00. I constantly see these in designer bedrooms in online sites. Lamps are also a dime a dozen.

Groveraxle, you continue to crack me up! I hope when I can afford to redo you will be available! :)

Lydia, where is that last rug from? I love it.

Funny......I hesitated to post that one! It's also from Target. :)

1. No you don't need to have them custom made...unless you have very unusual dimensions for your windows.

2. If you put something too big in your walkway...you won't be able to walk through it comfortably. I would leave that to one of your last choices.

3. Need? Eh? I don't think so. Not if you are aiming for a minimalist look. However, one or two may fill the space out nicely...matching coffee table? I would pick pieces on the daintier side...not heavy furniture...keep the light and airy feeling going.

Do you know what colors you want to go with?

Cheap art is photos you've taken. Pick something that suits your style --- Serene landscape; shadowy black and white; botanicals; funky and brightly colored. You can go on a photographing expedition, or you can raid your iPhoto. Get a large and high quality print. If you are taking the pictures and don't have a good camera, borrow one. Experiment with settings.

Cropping can make a fairly boring phone interesting. You want to get nice looking frames, preferably with mats. Ikea has a decent choice of inexpensive frames.

Sigrid makes a good point. Ikea's largest frame is: Width: 30 ¾ ", Height: 42 ½ ", Picture, width: 27 ½ " It's $25.

Most office supply stores will do a high quality, large format print from your own digital photos for $7 or so. And if you're not a photographer, maybe you have a friend who is. Maybe that same friend can also photoshop--enhance and crop--them for you.

And look at art.com for inexpensive prints that you can frame yourself. There are lots of ways to get affordable art, and art will really set your room apart.

If this painting was over the fireplace, what would I do next? How do I choose colors or patterns for curtains/rug/pillows?

Like this:

The new Vision Shades would work well on your windows. You can see them at www.solarscreenshade.com

Nice painting! Make sure it's the right size for over the fireplace. Where you start is about personal preference and has nothing to do with good or bad design. What I mean is there are alot of colours in the painting so choose the one that you're leaning towards the most. Example, I don't like shades of red so I would choose to pull out the blue in the painting. You might be attracted to a completely different colour in the painting. The most important thing is that you feel comfortable with the colour you choose. Once you've decided on that then you can move forward with decorating your living room. Also note that you don't have to pull out any colours from the painting. You could stay neutral and let the painting be the focal point. These might not be your style but they show different ways of designing around artwork.