I think I would take whatever material is used to the ceiling, otherwise it might look squatty next to all those windows. The windows and view are the focal point of the room, I think...so I would make any stone used smaller in scale so as not to overpower the room and compete with the view. Some small stone/tile in the tans/creams/honey tones I think would look nice.

They make beautiful TV consoles with a fireplace in them....would she consider that?

The best thing to do is to head to houzz.com and look at fireplaces for inspiration. They have everything from traditional wood with and without an overmantel, stone, tile, brick, etc. etc.

I would take the material to the ceiling with a projecting mantle, not thicker portion topped by a shelf.

I would also consider an asymmetrical fireplace, or one that wrapped around the bumpout in the wall to the right.

I would actually make the fireplace smaller than advised above, and smaller than the blue tape on wall in the picture. First, it's not a huge wall, and the ceiling looks to be right around 8 ft. or 8'8" at the most on that wall. Putting a fireplace surround all the way up to the ceiling is going to bring the ceiling down visually, and whatever material is used will look too heavy for the size. Something modern and uncomplicated , like a drywall bump out with the firebox recessed and flat slate or something around it? I wouldn't do elaborate moldings or a wooden mantel as that would draw attention to the lack of molding in the rest of the room.

From the picture, the placement looks problematic. Most people want to use the fireplace as a focal point and arrange seating around it. The space chosen looks like it is a walk through from another room, and if so it couldn't be blocked by any furniture. Unless it is the space currently occupied by the tv? It's hard to tell from the pictures.

She's looked at tons of Houzz pictures and has a file of stone fireplaces with rustic wood mantles. Would that style look out-of-place? To me, the stone fireplaces seem like they may be a bit heavy looking for the room, although it's a big enough space. Should the mantle be white instead or doesnt that matter? Flat hearth or raised? If not stone, what would work? She's opposed to anything modern, and she loves the look of the stone ones.
kwsl~ the fireplace will go on the wall where you see the TV. This is the end wall of the family room and not a walk-through area. It's what you see when you enter the space from the kitchen, but then all eyes are then immediately drawn to the focal point to the left, the lake. To the right, out of sight, is the dining room.
pal~ I'm having trouble picturing an off center fireplace..do you mean you'd not have the opening in the center of the wall (between the window and the bumpout part) how close then to the bumpout part?