Here's a picture I found last night... not a favorite design, but an example. You'd still need a planting (or large potted plants) at either end to soften the wall, imo. A wall will give more privacy (and provide it quicker) than only shrubs. My aunt had a small courtyard, with small pond/fountain, off the breakfast room. It was a lovely little secluded spot and always seemed magical to me (as a kid).

However you decorate it, don't neglect good acoustics. Parallel walls and a lack of upholstered furniture/rugs/curtains = excessive reverberation (and volume if it's a small room). Too much upholstery/curtains/carpeting yields a flat, lifeless sound. I had a relative who had the latter problem and solved it by building a wood platform to place underneath the grand piano, shaped like the piano itself, which both looked great and improved the sound. Also, bright light shining through large windows directly on the piano, especially non-UV-treated glass, can be harsh on the wood. The tray ceiling is a good idea - helps disperse the sound.

"And what is the huge commitment? If you tire of wallpaper - even if it is the "real" kind, just change it. It is a small space and not a huge financial commitment." Helen, maybe I'm terribly unlucky but I still have leftover glue from the PO's wallpaper border in one of my bathrooms. (If only the vanity had that kind of durability :P). Also, don't know about Victoria's option but the wallpaper murals that tempt me end up running close to 1K for a small room. Must admit when I break down the wallpaper option, it daunts me quickly. Not trying to rain on anyone's parade as I love the look of many wallpapered powder rooms. @Victoria Holloway, forgot another alternative to wallpaper: paint stencil (depending on DIY-ability, etc.). Just sharing in case you want options. I wish you luck in your decision. Keep pattern scale in mind for best effect and if you go ahead with it, please share your "after" pics!

I think the first thing one will see is the accent wall and art. We are all accustomed to seeing TV's on a wall and the eye really no longer registers them as significant enough to distract. I agree, I think a nice rug in the entry hall will provide a warm and welcoming feel. That should be enough to create the foyer as its own space. Leave the dining room rug, but colors pulled from it and in a different style. I'm liking the blue color scheme. It's hard to tell on my monitor if the background on your rug is white or greige. These are examples but you will need to tape out the correct size on your floor before buying one. I just edited this post for clarity.