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

It depends on the species of wood (I.e. How hard or soft) and whether or not the ambient temperature can remain as stable as possible. What you caulk and paint in warmer weather may look great now, but when it begins to get colder, the wood begins to shrink, and the caulk will begin to pull away. This will look worse than if you didn't caulk at all. My suggestion is to use a caulk like the brand called "Big Stretch " in an attempt to avoid this.

Do you want to keep the wood floor? It is rare to see wood floors as garage floors. I've seen homes like this moved onto pour basement slabs (same concept as pile foundation...but with a basement instead of dirt. If you want to keep the wood, then there has to be a way to keep the wood off of the concrete. An 18" crawl space (dirt covered with 6mil poly sheeting or cement) is always an option. The 18" crawl space would have to be cross vented/heated properly. This is for "keeping" the wood. Flooring. I'm not sure what has to be done to remove the wood floor and have the building sit (joists and all) on concrete. Remove the joists and you have plenty of stability problems. You would need to speak with a local architect/building engineer who has some knowledge of what you are trying to do, soil conditions, etc. to get this right. In theory it can be done (we've just landed a small car on a comet...we should be able to put an old building on a cement slab)...I'm wondering about the expense to get it there (excavation + soil stabilization + concrete + piles, etc).

Flooring should be light. I'm not sure how a bamboo floor would work. Did you end up going ahead with the kitchen plans? What did you go with?