Good Idea! I'd watch for pressure treated lumber though.

When my first two children were young I actually did convert my formal DR to a playroom. I was so tired of their toys cluttering up our family room and they still wanted to be close by where I was instead of off in their room playing with their toys. It opened up to the front door and yes, it was what people saw when they can to visit; but most of our friends had children also and I think everyone appreciated the kids having their own place to play free of any furniture, but still close by. We took out the chandelier which we never liked anyway and put in a semi-flush fixture so that you could walk underneath. I owned a drop leaf table and about once/year I'd move all the toys to the garage and set up for a formal dinner. If I had wanted to make it more private I could've installed french doors leading from the entryway and covered the glass with an opaque film or fabric, but I always saw this as a temporary thing while my kids were young. As they got older, they were OK having their toys in their rooms and I set up their closets with closet shelving and organizers to store their toys in plastic bins. A few months ago someone posted an amazing picture of a built-in that covered an entire wall and had doors, behind which were shelves with toy bins and games. All the toys were stored away and not visable, but fully accessable. Are the bookshelves in your LR built-in? Perhaps you could convert it to something similar.

Mid Century Modern. It's a bit of a catchal phrase thet refers to the more streamlined and modern style ranches that were prevalent from 1950=1970. It's a highly sought after look if done well. Think AMC's Mad Men series and catch up on it if you haven't already. You don't want to destroy the unique positive features of this home! Work within the guidelines that the home's style gives you. The fireplace is a great inspiration, and if there is any way to save those floors and just expand them into the rest of the home, I'd try my darndest to do that. Wood in any of the bedrooms that could be harvested for instance? Just a plain coat of paint in something like a retro natural intense green (Martha Stewart Chardonnay Bottle) with those wood floors and add in some wood blinds and the look would be 1000% improved. A big long Chesterfield tufted low back sofa in a saddle leather and some Panton chairs around a Saarinen table with a Sputnik ceiling fixture. Slab front kitchen cabinet doors in a natural cherry and concrete counters in a cream that matches the fireplace would be terrific!

I agree moving the toilet will give you a much better space if it's possible. I find it gross to bathe in a tub so very close to a toilet - especially with 3 teen boys using that toilet! It seems like a pretty small bathroom, so trying to fit a wall-length counter in doesn't seem like the best use of space. Since the tub must be at least 60" long I assume your bathroom is about 60" to 72" long - you could change the layout to have a vanity with plenty of storage and adequate counter space (somewhere between 30" to 48" vanity) and have the toilet on the far side of the vanity (allow adequate space on either side of toilet for ease of cleaning), attach TP holder to the side of the vanity and then use floating wall shelves or an over-toilet cabinet to give them additional storage, then towel hooks or bars go where the toilet is now.