Not sure I explained myself well, based on your response. I am notsuggesting wrapping the brick wall in wood, and the wood i am suggesting would match your cabinets. I am suggesting a panel of cherry that runs in a vertical line the width of the fireplace (after covering the brick surround and one brick width wider all around that in a dark granite). The rest of the wall would remain brick. The wood panel would cover the arched niche (once you knocked off the lip). You could easily add a mantel then, perhaps in the same wood or even a rectangular box of stainless steel) on top of the wood panel. The ledge may be at eye level,but that in now way precludes you from leaning a piece of art on it. Check out how art is hung in galleries and in collections in homes, and not all of is (or can be if in a grouping)at eye level. I wish I could photoshop this to better illustrate my thoughts.

I'm loving all the ideas and am going to have a hard time deciding what to do now! Justgotabme- A BIG, thank you! I have such a hard time "visualizing" what the end product will look like and I really appreciate the time you took to help me out! Thanks to EVERYONE who responded for all your great ideas. This forum is awesome! I agree that the hole would definitely look better gone OR as part of the "built-in" instead of being just a separate hole. Now, if I can just figure out how to make that happen.... Here is another picture after we added something else to the hole tonight. Thoughts??? (ie. can we leave it this way until we fix it and not be too embarrassed?!) We definitely started leaning toward the 50 inch TV because it's HARD for me to find stuff that will look good in this room!

Leaning ladder shelves are a trend that is pretty well on its way out, and was never a very good look. I'd opt for bookcases on each side; it will not matter if they're not symmetrical. I'd make certain to fill them primarily with books, not just as staging shelves for knicknacks, for this to look right.

Hope finding the brick above gives you a little peace of mind. Years ago, (dating myself) we had an oval shaped cast iron wood burning heater downstairs and a metal shelf hung between rafters in the ceiling to hold brick above the ceiling and thru the roof. The triple walled pipe attached to the back of the heater took the smoke from the heater to the brick. Covering that heater and pipe with the least possible brick or stone -- least possible expense -- would likely have resulted in a triangle shaped chimney. That is why I suspected you may find a wood burning stove or fireplace insert and some triple walled metal pipe beneath the stone -- but you may not be able to know for sure unless/until the stone is removed. Even if you eventually discover you don't like the look of the brick behind the stone downstairs much or any better than the current uneven stone, it would be easier to clad "straight/smooth" brick with something you do like than to try to alter the current stone. Also, without the stone adding to the size of the fireplace, it is likely there would be less of the floor to redo to match your new flooring. Looking forward to the "after" pics when you make your home/fireplace what you want it to be.