Seems to me that the wall colour is already light. Can't imagine you'd go lighter. Maybe paint the wall area below the mid height trim white, to mimick wainscoting. The amount of lighting though seems inadequate for the large-ish space and maybe that hanging style is too dense looking?

I like the idea of lighter walls-- they look rather gold now. There are lots of great off white/ creamy colors that will work with the white trim. The chair rails should be removed to give you more of an open feel too. Think of it as a dress- to appear wider = horizontal stripes., taller \ thinner = vertical.
Since you want more open bright space it will help. You can choose colors that will set the stage with the rest of your house so it flows. There are some lighting options too. I can't tell from the photo, but is there a wall you could put wall sconces?
A great rug with some colors that coordinate with nearby rooms will give your space a firm foundation and some pizazz.
Try finding some photos/styles you like and go from there...good luck of poof it as

Flat paint is best or go one up from that if your walls aren't perfectly smooth. Any gloss will make it look "cheap"

Yes - the light needs to be changed and needs to be centered as well. Thanks for the tip with craft paper Addison Design. Will try that. Hmmm - I didn't think of a dark color at all! Can you please recommend color palette? My kitchen (where the hallway enters into) is BM Alaskan Husky and I'm thinking the family room will be a soft yellow (not yet finalized the color).I want it to look warm and inviting as soon as you enter the house. Thanks again!

Check out my Pinterest board to see the high gloss walls I referred to: http://www.pinterest.com/addisondesign/lacquered-walls/. This is a very expensive treatment but, if you like the look they make wallpaper that gives the same look. I'll get back to you with a color suggestion.

Addison is right on. Also get a runner for the hall & 5x7 for the door.

You might consider having a beautiful glass entry door installed to actually add more natural light.

New front Door with glass, colorful floor runner, artwork, small table with fresh flowers!

Look at this items for your entryway! :)
https://www.etsy.com/it/listing/172226509/servante-bombata?langid_override=0
https://www.etsy.com/it/listing/177391443/servante-sagomata-bianca?langid_override=0
https://www.etsy.com/it/listing/165135966/consolle-intagliata?langid_override=0
https://www.etsy.com/it/listing/165567709/consolle-con-gambe-scanalate?langid_override=0
What about this kind of mirror?

poojakiyer Alaskan Husky is a very pale grey that appears to have a blue-green undertone. Since your planning to pare that with a soft yellow, I think a lovely blue would be nice. I like BM 1659 Spellbound. However, I would recommend you take advantage of the color expert employed by your local Benjamin Moore store. I find that they are very good and will probably come to your home for a color consultation at a very nominal fee. With a grey, yellow, and blue scheme, a gold framed mirror will pull in the yellow from your family room. Good luck.

Thank you all so much for your suggestions. I will checkout spellbound. I have a another question. Attaching a photo where I could possibly add a settee. But the wall above has the thermostat and light switch. Is there any way the wall can be spruced up with a painting, etc to avoid looking at the thermostat?