I vote for hardwood or engineered wood through the whole space, including the kitchen. Opening the wall would be nice, but I suspect your appliances are arrayed along that wall? I'd paint the wall the same pale color as the living space, and hang a really big mirror on the wall if you can't open it. Then you open the wall visually, and reflect the light from the sliders back into the space. (I know...me and mirrors. They are great manipulators of space, particularly when you commit to making them big!)

I like both Rebunky's and MG's ideas. If you don't want a full banquette, you could still have a window seat and then a dining room table. We had a Craftsman home once and, in addition to dividers between dining and living similar to what MG shared, we had a window seat in the dining room plus wainscot in the dining area in Craftsman-style (not beadboard) with nice, wide moldings at the top to create the plate rail. That and your trim on your doors/windows should easily keep the Craftsman details you love. Of course, I realize that all Craftsman moldings probably aren't the same but we were able to recreate our moldings in a family room addition using various pieces of readily available moldings from HD. I would just add that, imho, if you end up having the w/d in the kitchen, I really don't see the problem with that. I wish I had a picture to share but I someone who has a w/d, side by side, not stacked, in their kitchen behind bookcase doors built on strong piano hinges. The door glide easily and she had some books and pretties displayed. Most of the pretties had museum gel to help hold them in place. She does laundry regularly so the clothes are loaded, washed, folded and put away without laundry piling up. Without a laundry room, you would need to do that in order to not create a mess area. If that's your style, it could work well for you.

so sorry - I didn't think this posted - deleting now...

Cute place, i see the challenge, but I am really against a sectional in this space let alone for guest to have to sit next to each other it creates a weird dynamic. I hope you are not planning to put the tv over the fireplace that would also be a neck breaker. I see the couch on the side the two red chairs. the tv on the wall with the lockers and 2 chairs to the dining room side.