Buy seasoned used lumber for joists and have tile installer bridge between different floors with urathane caulk. Tape is applied bridging gap then urathane applied over tape. The idea is tape come's loose to slide to and fro while urathane adheare's only to sides of tile and stretche's x contract's with movements. Urathane come's in colors close enough to basic tile colors. To view example of urathane,look for parking garage expansion joints,filled gap between commercial buildings and sidewalk,brick/stone wall expansion joints and other masonary work. Even if the low room were filled with concrete the joint will have uneven movement and never be fit for normal tile. Think about required expansion joints in concrete mentioned above. Many wood floors snap togeather and float,have a look at those.

Thank you for your response, the ceiling height in the basement would be to level out with rest of basement. No, I would not want to go lower. The sunken living room floor on inside has joist hangers already, this is on the main house middle beam. I do NOT have my floor open yet but here are pictures I found online that would be very similar to mine. the hangers on inside with wall dividing rooms right on the load bearing beam. The other picture would be the way on outside of wall with joist sitting on sill plate. My thought was that the living room floor that I need raised has no bearing on the rest of the structural walls. With in this living room I would be able to remove finish floor, sub floor to see all of floor joist.

There are code requirements and math involved for the number of steps and height of each step which depends on the rise & run. You can't just magically decide to add another step. I would always vote to raise the area to make it level with the rest of the house, but you have to consider the fireplace box, outlet height, as well as the window height (I believe there are code requirements for both outlets and windows, not sure about requirements on fireplace hearth).

I would get rid of the nook area- add that into your kitchen with the island used for casual eating. Do you use your nook for eating? My nook table is constantly covered in papers and is very rarely used for eating. We are excited to ditch our nook and have the dining table... it will help us to actually use the dining room:) I just looked up and see Lisa and a couple others are on the same page. I'm not sure I'd knock out the dining wall. A little separation is nice. And, it seems I've read that separate spaces are making a comeback after so much open great room plans. Lisa's last plan is interesting. I have a friend with a sunken room and she has some cabinets that span upper and lower spaces like photo below.