Someone got carried away with all these architectural elements. I recommend enclosing the upper niches with dry wall and the wall above the fireplace as well (eliminate that arch detail). Then I would build in cabinets in the lower niches on each side. The cabinets should be the same height as the adjacent low stucco dividing wall and the cabinet doors in contemporary styling. I would place the TV on the wall in one of these areas rather than over the fireplace. Art work can be placed above the cabinets on the opposite side of the fireplace. Face the fireplace with stone if you like. I recommend against a wood framed carpet area as it is just adding more confusing elements to the room. A beautiful large area rug on dark hardwood floors would be the most elegant solution. The area rug will provide the contrast between the dark sofa and floors. Stain your stair handrail the same dark color s the floors or paint out the same color as the posts. I would get rid of all the white trim and paint the walls and trim the same color for a more modern look.