I think it would be helpful if you would post a picture of the whole room, and some pictures of fireplaces and things that inspire you.

I quite like the retro-chic look of the painted brick, but that's just me... It is possible to panel over the brick, and if the fireplace is original to the house this will preserve it.

Before doing anything drastic, it may be worth painting it in a different colour, buying an attractive fireguard, and rethinking how you dress the mantelpiece and hearth. You may find you don't need to change the whole thing after all.

I'd like to know what's hiding behind the toucan...

If the brick underneath the paint is pretty, what about stripping the brick and adding a flat stone hearth? The tone on tone is not appealing, and introducing color into the equation will help a lot!

Dry wall it and start new.

Yep...need to see the rest of the room and more of the fireplace to see your style. I am actually replacing the 80's fireplace with brick that I will paint white! Go figure...but I like a classic look.