Good points. If the fireplace is merely a focal point and you have no illusions about using it more, I'd suggest keeping it and re-facing it (check this out: http://www.houzz.com/user/fireplacesafetyscreen). However, if you have natural gas available and would consider changing over to a zone heating solution, an efficient direct vent fireplace could save you some money by "taking the chill off" on rare chilly mornings without firing up the central heating system. I just hate to see someone spend money on a surround first and think about the fireplace later . . .
A nice slab hearth would sit on top of the floor just like it does now. Do you find yourself walking into it? If not, I wouldn't worry about making it flush.Fireplace hearth extensions are generally not in the main traffic pattern, so it becomes a non-issue.
I see from your previous choices that you are looking at natural stone, so I sketched up a version with natural stone below the mantel shelf and a simple flat panel detail above (made out of 1x6 or MDF, cheap). Using your existing trim paint helps to keep it fresh and not too rustic:
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Q