Here's another picture from a different angle.

This room cries out: Arts & Craft/Bungalow interior design and "William Morris"

I think this would be a place where you could add some drama. A darker paint color to highlight the white paneling - perhaps a navy blue. Roman shades. A seating area including a sofa/loveseat and two chairs in a patterned fabric, as well as updated lighting, perhaps with pendant lighting in a style something like this:

Wow I love it! What about a formal sitting room for entertaining? here are some suggestions:

http://deciture.com/shop/furniture/7/custom-dodson-upholstered-loveseat/
I would purchase two loveseats like this and have them facing each other with a coffee table in the middle.

http://deciture.com/shop/furniture/7/sylvan-coffee-table/

Link to the folks who make the lights: http://www.custommade.com/by/hiihgallery/

Oh groveraxel you are the man. I was thinking really awesome sectional I am not sure of your style so this is mine make it really user friendly for drinks and conversation, I like grovers idea too. Better let us know your style before we really go nuts

These are all really awesome ideas! This is my first home, so I'm really open to any ideas. Also, do you guys think it would serve better as a sitting room/formal living room, or do you think different ideas (such as a library or game room) would be better here?

I envision the space as a conversation area/living where you could also sit and read a book. You could place a tall dark wood armoire against the wall that faces you as you come in. The armoire could function as extra storage as well. Two bamboo chairs, a small couch, and an ottoman with a large tray for setting things down and your good to go.

Kristen, only you can answer how you will use the room, but since it seems to be right next to the front entry, I would make it more of a sitting area than a play area. It will tend to stay neater that way, which is what you want when guests enter the house.

Hi Kristen -- Does your home need a dedicated office space? What's happening with the indoor windows?

Looks like a great space - I would first decide what type of room would get the most use - reading/library area? Formal living room? I agree that if it is the first space you enter from front door that may help determine use too. A great chandelier would make a real impression and add a small sofa 2 chairs & coffee table

The room has no focal point such a wall for art, fireplace etc. so cruise online and local furniture stores until you find the most beautiful sofa in the world. Go from there.

There's a dedicated office space upstairs. There's also a living room just beyond this room, across from the kitchen area. This room truly is extra, and somewhat unneeded. :) However, since it's the first room guests will see when entering the house, I want to keep it nice and neat, of course.

I would LOVE to put in a chandelier--I think it would look beautiful. But the ceilings all throughout the house are the standard height (8 ft?). I'm trying to find a chandelier I could hang in here without it overwhelming the room or hanging too low. Any ideas/suggestions?

Not sure what I should do with the windows, too. This is my very first home I'll own, so I have no idea how to decorate! I just want it to look nice and contemporary. I'm loving all the ideas so far.

I love this Moso pendant: http://shophorne.com/content/moso-pendant-lamp-end-grain-bamboo

It looks to me, from what I can see of the room toward the back, like you have the decorating gene and don't need all that much help. I love the gray stripe curtains and that yellow thing that looks like a shutter on the wall. Follow your instincts; you're gonna be great.

BTW, the chairs and entry console in the Photoshop below are all from West Elm. The yellow coffee table is from Bobby Berk and pricey, but you could find some old thing on Craigslist and paint it if you like the look.

Almost forgot my favorite part: the art is from http://www.greatbigcanvas.com/view/canary,1053496/?s=43sE7xbeRfaKoyW17IzmzK6VaRHf3bzPM1I8sXAEvzlkJW2PbTZ46Y1XliSKa11S

Because your front door opens directly into the room I would go all out to make it a beautiful entry hall. Add a big round table, hang a beautiful chandy, and add some extra accent chairs of stools so that someone could find a seat if needed.

Groveraxle, the gray stripe curtains and the yellow wall thing in the other room come with the house--we negotiated with the sellers to leave that staging material there. I wish I had the decorating sense to come up with the curtains on my own! Unfortunately, I have no sense of style. I'm getting some great ideas here, though. I'm thinking a formal sitting area with some nice couches/chairs, a table, and a nice little chandelier to replace the "boob" light (great terminology there btw). I'd also like to add a little area for shoe storage--I want people to go shoeless in my house--so I'll be on the lookout for something like that too.

I'm thinking about keeping the room with white furniture and doing some bright colored accents. Here are some links to things I've envisioned. Thoughts?

Armoire/coat/shoe rack - http://boise.craigslist.org/fuo/4315514979.html

Window seat for the front window - http://www.ebay.com/itm/New-White-PrePac-Large-Cubbie-Bench-4820-storage-/360778414889?pt=US_Benches_and_Stools&hash=item540011bb29

Sofa - http://www.ebay.com/itm/LexMod-Chesterfield-Sofa-in-White-Leather-and-Leather-Match-/141165945657?pt=Sofas_Loveseats_Chaises&hash=item20de256339

Round accent table under the chandelier - http://www.ebay.com/itm/Cottage-White-Round-Dining-Table-/300938598896?pt=US_Tables&hash=item46115699f0

Chandelier - http://www.ebay.com/itm/New-2-Lamp-Crystal-Chandelier-Pendant-Silk-Drum-Shade-Ceiling-Light-Dia-12-/221371930783?pt=US_Chandeliers_and_Ceiling_Fixtures&hash=item338acb989f

Chair (not sure if there's room) - http://www.morfurniture.com/galaxy-milky-armless-chair.html

Exactly - all white except for this paint above the wainscot!

Beautiful room in need of a purpose.... ladies' parlor? Love the blue just above!

That sapphire color is beautiful! The only problem is that the ENTIRE home is done in that gray and white, so I'd feel that in order to change this one room to the blue color, I'd feel obligated to change the entire color palette of the house. Thoughts?

Side note--do you think it would work to make this blue color an accent color - pillows, rugs, throws, etc. on the couches and window seat?

Really like the items that you've chosen, but I'd work to make sure of scale and use. I would measure the room and then measure the items to see if and how they would fit, and how you would use them. Some considerations - measure the height of the bench in relationship to your window. It shouldn't intrude into the window area to be a window seat. Is there room for the bench and the table? The table looks more like a small dining table rather than accent table. Would you have chairs with it? Would the sofa fit or would a loveseat work better in scale? If room for a chair perhaps a higher slipper chair might be a consideration. Like the all white concept and think it would work well here and like your choices. If you want to keep the gray paint color, think that that color blue and the yellow in the adjoining room would be great accent colors.
Think the white with the accents will look great in here!

Definitely make it a sitting room. Not sure about using all chairs, will look like a waiting room. You could add a big armoire at the end of the room to use as a front closet if you don't already have one. Or just extra storage. Even with nothing in it, it's a beautiful room with all the millwork. But replace the light fixtures, they're kinda bad. Good luck!

The light fixtures are AWFUL! I love the chandelier I've picked out - that will go in the middle of the room. But there is also a light above the front door...Any ideas for what type of light I should put in there?

Yes, I'm going to have to double-check the measurements. The room is 13x10.5, so I might have to get a smaller sofa or forgo the chair. The window bench fits; it won't go above the ledge. So we're okay there.

All the links I've provided are just ideas of things I'd like to buy (or something similar). Nothing is for certain yet! :) Just bouncing around ideas until my heart's set on something.

Sometime the manufacturer produces a variety of fixtures in the same decor theme as a collection. Have you checked to see if there is a foyer/entry light to coordinate with your chandelier? Some kind of semi-flush one would work. I don't think you showed us your light.

Here's the link to the chandelier I like: http://www.ebay.com/itm/New-2-Lamp-Crystal-Chandelier-Pendant-Silk-Drum-Shade-Ceiling-Light-Dia-12-/221371930783?pt=US_Chandeliers_and_Ceiling_Fixtures&hash=item338acb989f

I also like this one, but I'm not sure it would go with the room's colors: http://www.ebay.com/itm/Vintage-Crystal-Pendant-Ceiling-Light-Lamp-Chandelier-Living-Room-/390749050081?pt=US_Chandeliers_and_Ceiling_Fixtures&hash=item5afa7554e1

The first one is too small to be a whole room light--it only has two bulbs. The second one is nice!

To size correctly, measure the width and length of the room, add the feet together and then just call them inches. So an 8x10 room would take an 18" diameter fixture. You will have to be conservative with the main fixture because it is so close to the "foyer" light. Perhaps you should look for identical drum fixtures that are semi-flush.

To keep it from looking like a waiting room, I would create a seating area. I would go for a loveseat instead of a sofa to give yourself enough room to add an accent chair and a coffee table instead of the accent table.

I love this room! Excellent.

Love the room. The almost navy BLUE will work with your grays and it is a fresh new decorating direction. Study pictures of cottage and modern furnishings. Find inspiration pictures. The tuxedo sofa looks to big and the chair all wrong , the whitewood pieces okay, maybe could do better. Needs some vintage.

If there is a grand chaise in the room, no one will think "waiting room":