When you say "Do we paint the paneling as well as the other side - the rails etc." what exactly do you mean by 'the other side"? Are you referring to the underside of the stairwell? If so, I would leave that element. If you paint the panelling just be sure to give it a sanding before doing anything. I just had the wood trim in my place painted (just baseboards, not panelling like this) and I was told that it didn't need to be sanded first. Boy, do I regret it - there are spots that are flaking off already, and it was a good quality paint and primer used. In your case, I would paint the panelling but not the banister and stair rails unless you are also planing on painting all of the wood trim upstairs. Doing the panelling will leave you with the lighter, fresher look, while still looking classic with the wood stair rails. Also, it looks like you have the wood panelling in the hallway/entry way leading to the stairs - I think you need to have a consistent treatment for both areas so would paint this as well.

Check with your realtor about spending any money on an update. Tidy up the stuff in the corner, put the sofa next to the fireplace facing the view, angle the chair near it, and let the next people decide what to do with the space. Some people will love the wood, others won't, but don't try to guess. You could spend a small fortune on new flooring only to have it ripped out as people make the space their own.

Your lounge looks like it receives a lot of sun so you might like navy, turquoise, or emerald green for the room. Whatever color you pick, leave the valances (?) above the windows close to the color of your air conditioner, so it won't be too obvious. Use lamps and update the ceiling fixtures. Bamboo blinds might look fun on the windows. Look to the kitchen floor for paint colors in there. It appears the range hood is way too high to be effective. Is that just the perspective?

How come you don't want to go with the two lounges in the room if it works out okay?