You should have minimum 5 ft but 6 ft is ideal. I've played pool where tables are 4 ft from the wall and it is too close. The standard pool cue length is 57" and the draw length is about 6" so 5 to 6 ft would be ideal.

I live in a very small open concept condo and I decided to arrange my furniture so I always have a 3 feet wide path to move around, and I can say it is a confortable width (for one person). But for two people, maybe less than 2x3 feet is ok, as they make double french doors starting at 4 feet wide... Suggestion : put some masking tape marks on the floor and try visualizing !

What a fun space! Love the pillows...I agree with above, lower all the frames, but not so low little ones can reach. The art should fall at eye level about 5'4" for walls and for behind the sofa not more than 12" above it. Then keep the width about 5" inside the sofa length on each side. Your frames are small so you need the close together for impact. I would start with some pretty curtains for the door and large window and then a simple Roman shade for the small window- since your girls play there you don't want anything they will grab hold of. http://www.houzz.com/ideabooks/query/how-to-hang-a-photo-gallery

Well, for lack of a better idea, since you find it a drafty little space. I'm assuming the draft comes in on the right? Most of the necessities in the area are located of the left side; i.e. vent, thermostat, light switch etc. What I would do I think is caulk up the drafty spots, maybe even add sized poster board wrapped in batting I covered in a gorgeous fuscia with diagonal grosgrain ribbons every which way covered with a heavy velvet to be attached to the area above & below the window. (Of course remove the drapes that are hanging in there). This for the purpose of using it as a pin-it board for notes. Attach a table height board covered in felt to carry across the full width of the little room. Leaving just enough space for a comfortable little antique desk chair. Paint the back wall a bright cobalt blue, paint the ceiling a silvery pearlescent white. Find a way to attach a clip-on task lamp. And stretch a heavy duty enough wire across the top of the opening and complete it with a heavy doubled velvet drape with a drooping valance. Place a swag with fringe & jewels on it to be closed when not in use. Voila intrigue is yours!