I wouldn't drywall over the window. Take a look at the options for recycled brick, they may match better than you think.

The first thing I would do is switch your light fixture to track lighting. That way you can focus the light onto that wall much like what is done in an art gallery. I also think that may stop the reflection you are getting. I think putting cabinets on the long wall will really close in the space. I would make your red wall your gallery wall. I'd frame everything in white so they "pop" off the wall. The problem with the other wall being the gallery wall is that it's just to narrow. You can't really stand back far enough to see the art.

Joanna Gains style is fun! What you choose for lighting and surfaces will determine the amount of reflective light in your stairway. The Architect is right in what he is suggesting "a decorative wall" could bring more light into the space. I believe you could apply this on principle....for example you could do a feature "Architectural Mirror"or lots of mirrors on the wall in the right position to reflect light in "Joanna Gain style" then in the same style add an eye catching pendant or wall lights depending on what is best functionally. Remember what you use on the ceiling & walls is important too every surface counts for your situation. Try a satin finish with a cool white like Dulux "St Clair Quarter" or Resene "Black White" Maybe Nancy's suggestions of a skylight is an option for your situation if it allows ? Natural Light is always great. Heres some inspiration...All the best!

Well done its going to look beautiful! I would consider have both! Even if you have the wall light above the bed a lamp beside you will act as task lighting for reading at night, whereas the wall light is more for lighting the room itself. Find lighting that compliments each other or from the same range for a cohesive and subtle look.