I am thinking about your idea of making the dining room into a guest bedroom next to a full bath, then using the bedroom/office next to the kitchen to expand the kitchen, change the window there into a back door, and change the master bedroom closet space for some of the office space. That is what you wanted to do, right? First, over in the dining area, the bathroom needs to be enlarged to add a tub or shower. That space must come from the pantry area, I guess. Just extend the half-bath wall until it hits the outside wall and remove the wall between the bath and the pantry, and there is your full bathroom space. Add a bathroom window, now that you have an outside wall, if you can. Now this small third bedroom will need a closet, to be a legal bedroom. Your best bet for that is to use the wall adjacent to the garage. The door to the bedroom will be a mirror image of the door to the bathroom, on the other side of the wall that separates them. This way, the bedroom does not really share a wall with the garage, it is the closet that will be colder in the winter and hotter in the summer. I have no idea how small that bedroom becomes, since you do not have any dimensions listed in the diagram I used. The rooms are really too small to add unnecessary doorways. You don't have to have the third bedroom have a separate entrance into the bathroom. The bathroom door is just outside the bedroom door, and that is the best you can do with the space that you have. After all, there is not a master bath in this house, why have a guest bedroom with a private entrance to a bath? What do you think, is the guest room usable?

The WC looks like 1x2 in the picture, I would bump it out into the bedroom another foot or two, depending on what you want in your ensuite. Leave door to bedroom where it is. In the bedroom just have a walkway the width of your door frame till you get past the ensuite wall. Remove WC door to hallway. Since I cant figure out how to upload now... http://i57.tinypic.com/2ij2m2t.jpg

I like both Rebunky's and MG's ideas. If you don't want a full banquette, you could still have a window seat and then a dining room table. We had a Craftsman home once and, in addition to dividers between dining and living similar to what MG shared, we had a window seat in the dining room plus wainscot in the dining area in Craftsman-style (not beadboard) with nice, wide moldings at the top to create the plate rail. That and your trim on your doors/windows should easily keep the Craftsman details you love. Of course, I realize that all Craftsman moldings probably aren't the same but we were able to recreate our moldings in a family room addition using various pieces of readily available moldings from HD. I would just add that, imho, if you end up having the w/d in the kitchen, I really don't see the problem with that. I wish I had a picture to share but I someone who has a w/d, side by side, not stacked, in their kitchen behind bookcase doors built on strong piano hinges. The door glide easily and she had some books and pretties displayed. Most of the pretties had museum gel to help hold them in place. She does laundry regularly so the clothes are loaded, washed, folded and put away without laundry piling up. Without a laundry room, you would need to do that in order to not create a mess area. If that's your style, it could work well for you.

@texasgal47: I am actually already thinking of a solutiion using a gateleg. I have access to an IKEA Norden table that with some slight leg tweaking (i.e. place leg in center of the table + shorten leg to close fully) it should to the trick: -> @Jillius: Yes, the entrance to the apt. goes through the hallway. The windows below are windows swinging out. The door on the bottom left (of this sentence) lead to a balcony. Here is the full view: