Option 2 This is what my husband is leaning towards. I think it looks a little akward visually, but it does provide both a living and dining space. Although the fireplace is kind of left out in the center on no-man's land with not much space except for two small armchairs. I am worried 75% of this space would hardly ever get used. Although the TV-setup is a lot more comfortable. We do have a TV room on the floor below, but I am guessing we would be spending a lot of time in this space as well. Note: I know the sectional is too large, it would probably be a chaise or something on the left side there as to not extend that far beyond the wall.

Here's an option for you, Anastasia. It's got an apartment sized sofa and two petite arm chairs. The sofa would be no more than 72" X 36" and the chairs no more than 30" X 30". You may even be able to squeeze in an ottoman or two for a casual perch. Sofa is on long wall and flanked by the armchairs. The TV is between the patio doors and window. You can find a TV cabinet with doors, so you don't have to see the TV immediately upon entrance, if that's a concern for you. For the dining room, you could think about a 4' round dining table. It will comfortably seat four. The advantage of a round table - especially with a pedestal base - is that it's easier to squeeze in an extra person.

I would not give up living space for another bedroom down stairs. Converting the rec room to a bedroom is a better way to create a 3-bedroom house IMO, but there would be the issue of a bath for the converted bedroom.

If you want a TV in that room the only place it can really go is to the right of the fireplace (maybe to the left if you find that works better for you). It is never recommended to put it over the fireplace unless there is nowhere else for it to go. You have more than enough space on the right for a nice console. Maybe in the future you can do something more dramatic with the fireplace as it looks small in that large wall (or maybe you are already and it's not finished yet). Put a tall piece of art over it (something that is less wide than the fireplace). Face your sofa toward the fireplace and TV. The dining table should have the long side parallel to the slider. I can't imagine it fitting the other direction. I don't think it's a bad thing to have your old furniture in there for a while. It will help you get an idea of the right size for new pieces. You may also get better advice if you post a graph paper drawing of the space so the commenters know exactly how much space you're working with. The perspective in pictures is sometimes misleading.