Seeing your light colors and the soft glow, what about a filtering honeycomb shade? Maybe in a milky cream color. They diffuse the light, but don't block it (you can get blocking ones, but not needed for a bathroom). They give privacy (I've had them in bathrooms and always test from the outside!) You can keep them lowered and still get light, or raise them when not in use and they compress to almost nothing. Something similar to this: I just ordered/installed window treatments for most of my house. I was sort of set on shutters for a long time, until I managed to find a demo shutter and bring it home, and saw how much of the window view was blocked by the shutter frame. That was a deal breaker for me. I ended up going with 2.5" slat blinds and am happy I did. Just a note on the shutters. On a window that thin I think you'll lose a lot of light. If there's anything on the outside of that window that can see you, you'll want to make sure you get lined bamboo shades, if you go that route.

If you have a pair or trio of small pictures that work well with the mirror frame and table (or a small wall shelf or box (perhaps with a door or drawer for hiding a cell phone and/or keys and/or hair brush for below the one small picture), you could leave the mirror vertical and hang it eye level but off center horizontally with a grouping of smaller items beside it. You might get some poster board and cut it to the shapes of your mirror, etc., and then use removable tape to test how they'll work spaced in different ways.

I feel option A is better among all, except for the play area because you will be having a whole room downstairs for that. And maybe move the dining a little to the left near the window. You can add a partition to divide the room into living and dining and mount tv on it. Place a storage unit /crockery unit behind the partition. I would still recommend you to opt for the layout shown in the 3d renders as its quiet functional and space is best-made use of. Maybe instead of a tv on the wall, you can use a media partition to divide the living and the dining. The wall along the kitchen can be used to place storage units or shelving. Let me know if you need me to do more 3D layout to help you visualize better.

How much work are you looking to do? I would paint everything over. Possibly a warm white. Id add moldings to the wall either shiplap or regular moldings. A new material sectional you can probably keep your rug. I like it. I also like the coffee table possibly but I guess decide on that later on. I would also do new shades on the windows