You have some good ideas but if you're going to sell soon and aren't planning on taking the soffit out, I would just do some minor changes and keep the cabinets (just add a couple cabinets). I wouldn't move the sink but just get a nice stainless steel sink and update faucet. I'd get a stainless stove vent. Remove the wall on the left of the refrigerator but then just do a small pull out pantry on the right of the refrigerator. And, put a cabinet above the refrigerator and make it look built in. A glass backsplash, can lights on the ceiling and pendants above the penninsula. I think a raised counter will make the kitchen/room feel smaller.

I think we are going to use the white subway tile to keep the budget down as I priced new tiles and it would blow out the budget. Really like the contrast grout idea to add a bit of texture and pattern. My partner is a builder and he loves the reclaimed wood shelf idea as we have a lot of spear old wood left over from the renovation. We have made a dinning table and fire place mantel from it already so it would tie in really well.

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.

Depending on you budget, I'd replace the counter tops and flooring. I agree with removing the dark valances. Replace the top corner cabinets with 42" cabinets or remove entirely. The ones there are too small for the space. An island, not that you need the counter space would cozy up the area. Also replace the front on the dishwasher with stainless steel to match other appliances. Your layout is good, no changes there! If you decide on an island, you could include stools there and remove the current peninsula, this would open the area to what ever room is adjoining the space. Good luck and have fun. It is a really nice space.