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.

You say the kids come in the small door and then bring their stuff to the large door to drop it? I think the "mudroom" needs to be at the small door. Anyone who brings their stuff out of that area has to clean the glass doors next time they need it. As for the guest entry, you need to get something bigger than that desk, and your picture needs to be lowered so the center point of it is 5' above the floor (you'll have to calculate the centimeters.) Consider making the investment to reverse the swing of the door so you can make the best of the larger wall to greet your guests with a console or credenza and some decor.

An entire wall of built-in cabinets and hooks and cubbies for your crafting stuff (and perhaps filing-type stuff and printer for the office). Take a good look at what you have and think about how best to organize and store it and what could be displayed to be pretty and what should be hidden behind curtains or doors. A fold down ironing board on a wall or back of a door somewhere would be great. A nice desk and filing cabinet for the office side... or perhaps a great big table in the middle under the window, wide enough to function for both of you facing each other? A nice curtain rod would make a big difference too. Preferably just about floor to ceiling. I'd put a splash of colour on the walls and keep the curtains simple, but you could go vice-versa too. Something like this: [https://www.houzz.co.nz/photos/modern-bungalow-phvw-vp~4999540[(https://www.houzz.co.nz/photos/modern-bungalow-phvw-vp~4999540)

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