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

Some inspiration, the last pic is clever with the bookcase, you would have a lip on the shelves to stop books falling off every time you open the door, but it sure serves two purposes

Photo of the planned area