I would buy a portable crib so you can make It a nice guest room and just add portable crib when needed..

Keep the rail/molding and paint it all A soft white....walls and trim...

I agree a portable crib and have a nice guest room. The babies will grow out of the crib quickly . As for the blinds I never like wood blinds and always like drapes in a bedroom it is also easy to make them blackout. IMo if you do not like the trim take it off , pathch the wall and then choose the look you want for the guest room ( I start with bedding) then choose a wall color. Find another home for all the kid stuff since if they are still in a crib they are not playing in that space. We did a nice box with a lid for special toys they only had at our house an pulled the box out when they arrived.

Roller underbed boxes are perfect for grand baby toys...you can store them but the kids can roll the box out when they come to visit..hides nice under bed..the clear are nice you can see exactly what you have stored...I would remove the wood blinds...if you have a Tight Budget....just paint that molding same as walls....add a black out honeycomb shade they push up tight in the window when not in use..add a drapery rod with pretty panels they can be stationary...no need for black out the shade will do when you have guests or grand baby overnight. What size bed do you have for guests?

Pack and play instead of a crib for sure if you are short on space. It seems that you probably aren't, though.

I so agree with avoiding black-out for babies. They do not need it and if they become accustomed to it, it creates a nightmare for them and their parents when they need to get the baby/child to sleep under less than ideal conditions. Same with noise. If they are trained to sleep only when it's perfectly quiet, then good luck getting them to fall or stay asleep when they have to sleep elsewhere. Leave their door open, vacuum, empty the dishwasher, etc. They will sleep when sleepy and are more likely to stay asleep when they are used to different light and noise conditions.

I have no window coverings in my bedrooms and haven't for 50+ years. I have no problem going to sleep or sleeping until noon if I want. In fact, I feel like I'm suffocating if I stay in a hotel room with blackouts that must be closed for privacy. It's all what you are used to.

That said, it looks like you have plenty of room for a nice bed, even with the crib in the room. I'd consider that the grandbabies will probably sleep in the bed for their naps (and maybe overnights?) after they grow out of the crib, so I'd plan for that. If the kids will use the room as a playroom, I'd consider a pull out couch for the guest bed. They do actually make some comfy ones. You could then have more room for the kids to play.

look at the CB2 Flex for style and ease. https://nymag.com/strategist/article/best-sleeper-sofas-pull-out-couches.html

I'd just paint the rail the same color as the walls so it will nearly disappear.

Not sure what studies you base your keeping light in bedroom on? But a dark room is a perfect condition for sleep and helps regulate their bodies for better deeper sleep.

Considering this is not your child, but your grandchild, I would ask the parents what sort of environment they would like for the baby for sleep. No one else on this forum knows. All babies sleep differently, and all sleep is not equal: noise (except white noise)/light/motion typically result in less restful sleep. If the parents are using blackout curtains, maybe you want to consider getting them, too. If they're using a sound machine, definitely get one of those.

You already have a crib, so you might as well keep it if you want to. If you paint your trim, you could easily paint the crib as well. If you want to get rid of the crib, a pack n play would work too. For guests, you could consider a murphy bed or a day bed, so the room has space for other uses. I was planning on using our guest room as a play room by day, and using a murphy bed or a day bed with a trundle for the rarer occasions when we have overnight guests. Not sure how big your closet is, but you may be able to find a murphy bed frame that would fit in it. The french door closet in our guest room would fit a full size murphy bed.

LOL my babies never napped in their crib. I was told if you want them to sleep through the regular noises of a home then keep them in the midst of it. We had a travel crib in the dining room!! You didn't say how often this baby visits...or how old. Travel cribs don't work well towards the end of crib use. I love the picture rail and I would get some pretty panels for the window.

HiW Ease, I am not talking about leaving on lights, just the natural light that comes through a window. Another perspective:

Light's effect on sleeping

nobody seems to have addressed the window helpfully -- for sure take down the wooden blinds, and maybe get a top-down bottom-up accordian blind that can be left open for a view or closed for light control.

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Including daylight