For budget reasons, you probably should not move appliances very far. My first thought would be something like the following (hope it is legible). This maximizes counterspace, which may or may not be what you most desire. To maximize storage, the pantry is full-height, and around 15-18 inches deep. It would hold much more than just upper cabinets. You did not show a photo of your buffet window, but I am guessing that you might need to raise the window sill, which could be a big budget item.

No, just leave it with the eggshell finish. Mine is gray washed with eggshell, it has held up just fine.

I think that's a great setup and something I'd love to have in my own yard. Of course it could be spruced up and used! If you aren't comfortable DIY you can hire a mason work or fireplace specialist to come take a look.

I agree that it needs to go. Above the cubbyhole is a 20 or 25 gallon booster hot water heater that sits on a shelf. I replaced it recently because (it was 15 yrs old) I don’t have a clear idea on what to do and it’s always been there. The bedroom behind it could benefit from the space because it’s the smallest of four. But to get the full benefit, I would loose that closet. I could just pull out the hood and cover with drywall and call it a day. I could pull out the hood, cover the grill with marble, install a sink (got water lines right there) and make it a bar. Or, I could pull the brick, grill and hood out and put in a fireplace with some sort of brick or stone and replace the paneling and leave the cubbies. Maybe make that some sort of bar thing. The more I think about it, the more confused I am about what to do. I’m so tempted to cover it and leave it like a time capsule for someone to find 10, 20 years down the road. Maybe the indoor grilling thing will have made a huge comeback by then. If money wasn’t a problem (within reason say around 8k) what would you do?