First I have to ask, how committed are you to keeping the big giant blow up bouncy houses in your living space? There is just no hiding them or disguising them. So if you really want to keep both of them, you will always have a room that screams toy haven. Is there a spare bedroom where you can keep the larger one? Or reserve it for use outside?

I think the front room will work really well as a child's play area. Using creative storage, covered baskets or even cubes on your white book case can help conceal some toys. Since you are facing into the living room when entering from the front door, if the room with the fireplace is arranged in a cozy manner, that will be the first thing you see. Is there any way you can put the couch beneath the window, and the TV next to the fireplace where the white chair is? This way when people walk in they don't see the back of the couch and the TV facing them. Maybe you can move the chair to the corner of the play room, with a small storage cube ottoman in front to hold toys.

I agree, I think your dining area should stay close to the kitchen in the blue room. Otherwise it will be completely impractical when serving dinner or having guests over for a meal.

Thank you for your advice, here are some clarifications :):
The huge bouncy castle is out the door soon (it was temporary solution to get my hyper 2 toddler worn out when it was too cold to play outside - we live in Northeast). It barely holds any air anyway. The table and chairs are in the garage, they need to be refinished, but that's waiting for a warmer weather too - hopefully soon in the beginning of March, believe me, I'm fed up having the castle there too lol.. The table: round oak table with pedestal leg and pressback chairs, the tabletop will be stained and the legs painted black, same with the chairs.
As for the sofa.. the problem is, the window there is the only one that can hold AC unit in summer (the other windows are opened vertically) - that WOULD be perfect if it wasn't for that AC! Maybe if I moved the console all the way to the right of the back of the sofa and put an accent chair there.. Or moved the console on the wall where the bookcase is now (bookcase would have to move someplace else then) and put two accent chairs with a little table in between? The sof IS the focal point right now (or the back of it.. without my slightest intention at doing so..

Do you know how to put the pics in the actual message instead of providing the link? It was a bit difficult going back and forth between the link to give you some advice. You may get more help and advice from the forum if the pics were front and center.

I would love to embed the pictures in the message but not sure how. Tried to go to the Help section but I only see the explanation on attaching the link. Can you help?

I can do it on photobucket, but I couldn't figure out how to do it from the site you were using.

Can anyone else help?

Just checking to see if this works to share the pictures:

Ok.. THANK YOU. I used photobucket instead and looks like I figured it out now.. Here is goes:
Here's the view into the space from the front door.

The sofa is a bit on the diagonal, used to be straight but it seemed like it chopped the space into 2, and all you could see was the back, now it's more the side/back..
I wish it could go opposite the fireplace but then it's flush with the only window that can hold the AC unit.. And I really want to keep it close to the fireplace. Here's the playspace behind the couch:

Here's the view from the dining room, it's still pretty open to the living area.

And here's the dining room:

Again, the bounce castle will be out the door once I finish with the dining table, once the weather warms up.. My other idea was to make the dining room into playroom but the only space for the dining table would be behind the sofa, right next to the entry door.. Far from the kitchen which is connected to the dining now (half a duplex, so it's long and narrow). Any other ideas? Thank you in advance!