So you want to use the living room for children's play, TV watching, piano playing and entertaining guests? That's a lot of function for a small room. I'm wondering, do you have a dining room and what do you use it for? If you have a dining room, but mostly eat in the kitchen, you could easily turn the dining room into a piano room and play room for the next couple of years, until the kids don't need a play room anymore. Then you could have a living room with furniture that can float away from the walls. You could have adequate seating for guests, without cramming toys and a piano in there. Your options would be greatly expanded. Maybe you don't have an eat-in kitchen and this idea simply wouldn't work in your house. But it just seems to me that you are trying to fit so many different functions into this one room, and if there's any place in the house you can move one or two functions, you would have a much easier time decorating this room. Don't lock yourself into what the name of the room is; look at each space in your house in terms of what functions it can best support.

This suggestion is kind of taste-specific and might not be your style at all, but I'll share my thoughts... What about this long, lounge-y leather sofa from Article that Chris and Julia put in their cabin? This kind of sectional that's more like a sofa+chaise won't take up too much room in the narrow space between stairs and kitchen. https://www.chrislovesjulia.com/2018/01/sectional-frame-article-sofa.html With the floating stairs behind, I think you need something with simple lines, heft and no legs. The room could probably get cluttered looking very easily with those stairs, so my inclination is very minimalist furnishings. If you must have a TV in this space, I'd put it on the wall opposite the fireplace so at least you can view it from the kitchen. You could put a swivel chair to the left of the sofa so one could spin and see the fireplace. Personally, I don't think I'd worry about making the fireplace a "focal point." The sofa with the pretty stairs behind is a more important focal point, IMO, because it's what you see most prominently from the foyer, the kitchen and the dining room. Here's another layout that might provide some inspiration. Hefty, cool sofa flanked by a swivel chair and a bench. With an arc lamp. . . And a floor plan explanation:

I like the fireplace as is, and a warm white on the walls would enhance fireplace and all of the wood.. I would go warmer than this. Benjamin Moore’s Ballet White or Swiss Coffee could be possibilities. I like BM’s Natura Line. As far as furniture placement, I think 2 seating areas. One option, instead of sofa, etc. could be a center cocktail table or ottoman with four chairs. Or if you would rather have a sofa arrangement. I would put a small scaled sofa on the wall facing windows. Small scaled sofa would go where black marker is in this view. w/ rug: https://www.roomvo.com/share/o0am4r And sofa could possibly be larger; it is difficult to estimate available space there. so I am saying small scaled to be on the safe side. And if there is to be a tv in the space, I would place it on long, low console in front of windows. Additional seating by fireplace, but I have not yet figured out what would be best there. A chair or two, I think. Perhaps a chaise.

I've been managing vacation rental properties for 18 years, so first, I'd want to know the maximum number of guests you can sleep here. For starters, in the "day room," do you think people can see the lake itself if they're seated there in regular chairs? If not, you may want to consider a bistro table and chairs at one end to give people more of a perch. At the other end build in an "L" shaped bench that is high enough to afford sight of the water when one sits there. Add a custom table with it for a spot to set down drinks or to play a game of checkers. In the main room, place TV on one of the walls left of the FP. There would probably be less glare if it were immediately left of the FP and not opposite the windows. Seating will depend on the number of guests who may want to sit together to watch a game, etc., so the numbers will help determine what you should do about seating.