I would suggest you take out the cabinet that is to the right of the stove and use it elsewhere in the house -- perhaps in the bathroom or dining room with a hutch above it. Then, I would suggest you have someone install a lazy susan cabinet in the corner between the sink counter and the stove, meaning you would move the stove down a bit and have a small cabinet/counter top to the right of the stove. I would suggest you have the cabinets refinished in white and then paint the walls a pastel you like. If you would prefer white walls, then add white-painted crown molding and paint the ceiling a light neutral blue, such as Sherwin Williams Niagara Falls Blue. Then, I would suggest you choose a favorite accent color and use this sparingly in accessories like towels, pot holders, small vases or floral arrangements, and a valence above the triple windows. For a genuine 1940s look, you might have white ceramic square tiles with a rectangular red border installed as a back splash behind and above the stove. If you are replacing counter tops, I would suggest a light color such as white with a beige or light grey vein or striation for some sort of pattern. You might be able to find the same color and design in floor tile OR opt for a wood floor as another poster suggested.

I think the first layout is fine. You might want to consider moving the door for the storage room of the master bedroom so that it opens into the hall. That way the kids can use it for overflow storage. Also, that hallway is big enough that I think it could hold a large armour, providing more closet space. (There's no need to sleep in the same room as your clothes, so long as they're not too far off.) Also, don't forget that while the drawing shows kids in double beds, this need not be the case, so there will be more room for furniture (dressers or whatever) in their rooms. Finally, that step to bedroom 4 will not be odd at all. I've seen it in other homes. It looks clumsy in the drawing but it isn't. What you'll see when you come up the stairs is a bedroom door on a slight diagonal. It's only an odd jagged step if you walk like a robot, in straight lines along the wall, which is what your eye is doing on the drawing but you won't do in real life.

Good that the heat/air system is over the door and doesn't interfere with your decor too much. It appears the ceiling fixture to the right of the FP might indicate that the dining space is there. Put a sofa in front of the FP and two small accent chairs with it, facing each other over a round glass coffee table. Can you wall mount the TV left of the FP? I think the room is too narrow to put the TV above the FP - you'll strain your neck. If you mount it opposite the FP, a sofa and two chairs could work but will need to be small scale - try apartment-sized seating. The sofa could face the window with the chairs opposite it. You could turn to see the fire or to watch TV. Swivel chairs come in handy in such tight space.

That is a really small space,I think maybe an apartment size sofa would help you get the look you need and a smaller table or even removing the table and using two bar stools