Four years, so you have another room you gather/hang out in? What do you want this space to be? Formal or just a hall to the dining room? It isn't large, I would decide on seating first. Drapes aren't a priority since you have blinds for privacy.

Perhaps painting it a darker color would help with the overwhelming height. I can see a sectional or a sofa and a couple of chairs or two sofas. I would add a coffee table, side tables, lamps, a rug and some art. Just a few thoughts.

I would go for 4 chairs facing each other in a conversational grouping or a sofa and two chairs. Would look formal and be a great space to invite people into who aren't staying long. Get some nice art and a credenza for the space where the bookshelf is.

Your instinct to start with drapes is the right one. No need to do anything to the upper windows but just let in the light. Just deal with the living and dining area lower windows.

You have a sea of tan, so some pattern with just a touch of tan in new curtains is a good place to start. What colors besides beige do you like that could be a second color to bring in? Let's just say, it's blue--blue, white, and tan.
Then you could go with a neutral tan for a sofa and a couple of chairs. Since the floor space is actually rather small, chairs and a sofa with tall backs but slim lines and up on legs would be great. (Get legs in a wood that matches banister.)

Pillows:

I love this possibility if this is an entry "sitting room" assuming you have a family room elsewhere: 3-4 chairs--two wing chairs and one or two lower ones around a round coffee table or ottoman)

it's hard for me to estimate the size from the pics..think of furniture placement first. you want it to be a welcoming area-meaning some seating, a light or two, a side/coffee table with maybe books to look at, art or mirror or both..I'd take the etagere to other area where the books for sure will be taken out unless that's the only spot it will fit...then I'd think how to place it in a way that it blends into the sitting arrangement

I'd definitely do curtains as they'll help to ground high space..no, they won't take off height but will make the living more cozy and down to earth so to say. I'd go with furniture that's also not too light and ethereal, if you want to ground it..meaning: I wouldn't shy away from colors, prints, etc..same goes for curtains. future curtains in your dining don't have to match but do have to play well with the rest of window trreatments, and other fabrics. No, it's not a priority of course, I myself wait for months and years when needed to find right curtains; but do keep it in mind as a part of your general plan.

You didn't ask advice about your entry fixture but I'll dare to say in case it's fine with you, that it can be bigger/or maybe just a different shape/or a color-will help with more human scale feeling or so I think..I know, it's not easy because of the height.

Don't worry about embellishing and decorating upper parts of walls, decorate as usual, eye level or so..the feeling of height will stay there, the feeling of intimacy will come along it. I speak from my own albeit limited experience of handling entry, living, and dining with very high ceiling. I love cozy-I went with darker flooring, colorful furnishings, patterned curtains, plants..we did inherit huge, extremely nice mirror from previous owners which helped my direction. You can also pick an object or art you love whether you own it already or not. that will help your general vision. It can be painting, rug, fabric, light, chair...you name it. If you prefer less bold pallette, simple patterns-you can still reach that very cozy feel. You need to be comfortable in your room, then others will pick this feeling from you.

I'd look at a lot of inspiration pics-they don't have to be of rooms per se btw. Very different things like nature, art, movies can inspire us about the general vibe, the colors, etc. Of course I'd look at rooms as well.

On a very practical note, first thing first-Take dimensions, put together a simple plan-room, where the openings are..figure out the things that are most important to fit there and sizes they can be. Post it here if possible-I guess will be easier to give suggestions for furniture placement. If you don't post it put it in your bag anyway, take measuring tape too. That's how you'll always be prepared in case you see something

Good luck..it's overwhelming at first but then at some point it's fun:)

PS I see you've got some great suggestions above while I was writing, and some visuals as well. Take your time..and again, it'll be fun!

Those came up when I did a Houzz search for "tan blue white curtains" "modern blue wing chair" and "tan and blue pillows." The links should appear for you under the images. For some reason the links don't show up in my postings anymore :(

I'm with all the others who suggest a conversational grouping of upholstered chairs rather than a sofa, with lovely side tables, books, floor lamps--more of a library/sitting room feeling and very welcoming. Here are some round wooden coffee tables. Try to find a round table in finishes that match either the banister or dining furniture. A grouping of comfortable upholstered chairs around a round table is a wonderful place to have drinks andhors d'oeurvres before dinner.

Also you need a console table by the entry and a mirror.

Your bookcase doesn't work, but your art should find a wall in that room. The center of any art you bring in should be about 60" from the floor. Don't be tempted to hang art high just because you have high ceilings. You want art to be at standing eye level. Here are some Houzz art pieces in blues and tans, but pick art in the colors, styles, and subjects you like. An oversized square or two panels would look great. Here are some with the blue tan palette or just tan some with elongated images to draw the eye up.

I love the idea of 4 chairs in a conversation grouping-especially if it's not a room where you'll be watching t.v. It's great for having a drink before dinner or a cup of coffee and dessert after. I also think people are more comfortable in their own spot than they are sharing a sofa. Navy is a nice choice with your paint colors. Curtains will ground the space and make it more cozy. Lots of potential!