I'm a huge fan of the graceful arch. It is one of my favorite architectural features, right up there with window seats. I do have to admit that the transom is a very dramatic. However it would mean more glass to wash, and it is high up enough to require a ladder. If someone else does the housekeeping that may not be so much an issue. A little extension to support the arch (or transom) offers an opportunity to install a pair of small built in bookcases. That is a very convenient feature for storing a cookbook collection. Rosefolly

You can just add some styrofoam blocks behind a large piece of art (one that fills the niche) to move the art piece forward a bit, so it doesn't look like it's in a hole. You could stick them to the wall and hang the picture from hooks in the top of the niche instead of from the back.

Consider creating an enclosure for the material storage with something like bi-pass sliding doors. These can also serve as chalk or white board surfaces. An open, "see-thru" shelving unit can be used as a visual partition. This could be fixed or on casters to be flexible in its placement. Best of luck to you.

What are you willing/able to do? What, specifically, are you unhappy with? Are you considering replacing the furniture? Paint the walls? Without more information it's difficult for me to make suggestions. However, I'd strongly suggest moving that chair away from the draperies/window. And also change the paint color. Is the room as small as it looks in these pictures? If so, that furniture, in my opinion, is far too large. When you say "Beautify my living room again" (again being the word I'm referring to), what did it look like before when you considered it beautiful? I think you've got a lot to work with. It would also probably be a good idea for you to post this also in the Home Decorating Forum.