LOL about your son standing on the railing. My mom is still yelling at my brothers for things they do on her railing and the youngest will be 40 this year. In their defense though she put it up so they would be forced to go around her flowerbed to get into the house so they have always seen it as a challenge rather than a deterent. I am pretty sure she is going to stangle them one of these days. My rail is high like yours and I have noticed when ever we have company it gets used like a bar with people standing at it ,setting thier drinks on it ect. In that aspect the hieght has been a big plus.

How high is the deck?

You can't do it without some major reconstruction which you may not have the budget or space to do. At the very least, you have to wall in the open railing area on the left side of the stair case and add the wider steps at the bottom. I'm also not sure the mid-stairway door is even legally to code. It would be easier to solve the problems of heat loss, pet containment, and master suite conversion by 1) insulating the attic and upstairs windows to prevent heat loss, 2) putting up a baby gate at the top of the stairs to keep the pets up/down stairs, 3) walling in the part of the attic that you want to use as a master suite.

Blocking the fact the other dogs are there will not work well. Having rescued and retrained several dogs(one with much worse dog to dog anxiety), I found working on my dog's situation is the better long term solution. It is NOT the short term solution, however, often seeming to be not working well at all. What can be done is to sit with your dog when the stress level is high(the other dogs are doing what affects your dog) and be calm(your dog will respond to the calmness) and do the kind of things your dog likes. Stroking, playing, whatever comforts your dog. This will tell your dog that being calm when the other dogs are doing their thing is the desired state of mind you want your dog to have and keep. Other than the time required, the most difficult part of that is for you to truly remain calm and relaxed. That can take a bit of work on your part. Once a day if possible, three times a week would be the minimum. It is a pain to have to modify your situation because of neighbors, but training your dog to ignore the problem results in a happier dog for you.