I love your current furniture placement. If you are buying new, I'd try a sofa by the windows, and two side chairs (swivel would be nice!) where your current sofa is. Put a coffee table in front of the sofa, and a sofa table behind it (with lamps), and then add a table between the two chairs.

Would you be able to move the TV location at all? Maybe above the fireplace? If so rotating the couch so the back faces the dining room and then putting a couch table behind might be a good solution

I have a lot of fireplace photos saved because I am going to be refacing mine sometime next year. There are so many options. If there is a local natural stone that is popular, use that. Is this house SW style? Do you already have furniture you're going to use, or are you going to be buying new? While the fireplace should fit with anything else you have, I think the fireplace should be as trend-free as possible as it's not something you want to change very often. You can always paint built-ins if the color doesn't suit down the road.

Omg! Your house is so beautiful!! The view is breathtaking! The colors are amazing!! Bring some of those beautiful colors indoors! The fireplace is beautiful and unique. Work with it. Add a mediterannean stlye painting above the mantle, accessorize with natural stone pots and tone down the white tv cabinet. You might consider adding a very long sofa table behind the sofa with two lamps and find another place for your floor lamps. A mediterannean style rug runner along the back of the sofa would also look beautiful. If it were my space, instead of spending a huge amount of money on demolishing that area, I would hire a decorator to come in and look at the room to help me make it work :-)!