If you are going to paint with dry-lock the dust issue will be lessened. There is a picture of a poster who did the black paint on the ceiling thing. I haven't seen the finished room but it does disguise the unfinished look. This technique is very popular in restaurants. Once you get living down there the dust issue will be dealt with, with regular cleanings. I like the light paint idea for light better. I am not a fan of dark caves myself. I too would go with scraping and re-painting the floor. I did my laundry room in white and it not only holds up it is easier to sweep. I did mine in Kilz/water lock cement block paint. I would not invest in much if you aren't up for the full job. Three houses tells me no one wants to hang out in what feels like a basement. How old are your kids? Maybe you would be better off to create an indoor play ground down there? Hang a few swings from the rafters, get some toys on wheels let the kids do more gross motor play down there. I also kept all play-dough play downstairs. Without finished walls, warmth, heat source and lots of light, the more natural the better, it just will never be a second family room, in my experience.

Thanks everyone! I love the idea of the pewter colors or lighter shade of the blue for towels and accessories. I was initially considering red but that seems too nautical. Mush- this is prepasted but I used paste too. I think it makes wallpapering easier since it slides a little bit more with the paste. I think the seams are invisible; I really pressed them down good. The seams look much like the real thing does when you add each piece of the wood paneling. My towel bars are above the chair rail. I had to use the sink height as my chair rail guide. I think the wallpaper liner which someone mentioned would be a good idea to prep a tiled wall before papering, but this textured paper is quite thick compared to regular wallpaper. Order a free sample and see what you think. I personally would not put this up in a full bathroom just because I have had horrible experiences removing peeling/lifting paper that resulted from my kid's excessively long,hot,steam-laden showers. Thanks for the nice words and good towel color ideas, everyone!!

kam76- The room is 13.5 X 19.5. If your interested you can do a room plan at Bob's Discount Furniture, once your on the site, scroll down to room planner. You will need to register to save your plans, but it is very easy to use and very helpful when trying to decide on furniture placement in a room.

Wow - yeah, that's a lot of windows and doors. Holy cow. Have you thought about doing different colors on these walls to divide the spaces? I have no advice on the color because my computer and I are having a dress moment - I can't tell if those cabinets are green or cream. That being said, if you want to appeal to the masses, white and greige are major crowd pleasers lately. I agree that the rugs are the wrong sizes and I would say the red rug especially isn't doing this room any favors. I also agree that the island really isn't helping you. Here's my solution: I would take out the island and put in a built-in dining table. That will likely leave you with a patch in your floor, so put in a cabinet that faces toward the living area and that is table height, not bar height. If you're really crafty, careful, clever and lucky, you may be able to use the cabinet from the current island with some modifications. Buy two table legs from a hardware store. Paint or stain the cabinet and the legs a darker color than the kitchen cabinets. Then, get a nice, big, solid wood table top. Maybe something like this? or this? I don't know anything about these companies - I just did a quick Google search to get examples, so do some research. I'd go with a dark wood; don't try to match the floors. Because this built-in dining table is lower and longer than the current island it will block less of the view to the patio doors and it will actually draw the eye to that view. You'll be able to place any dining chairs around it and it will be more family friendly than your current bar height island. I wouldn't make it too long because you don't want to block flow between your fridge, sink, and oven range, but I bet you'll be able to sit 5-8 people around it depending on the size you go with (hard to tell dimensions from photos). In the end, you'll have an eat in kitchen with a patio view and a separate large living area. I'd recommend adding a pair of comfy, smallish chairs to your living room set to make that space more useful, as well.