Nothing will affect the feel of your house as much as the quality of the light. If you can at all swing it, keep your divided lights. Looking at your photo, those windows are gorgeous. Can you place glass on the exterior? I have some lead light windows in 2 locations. I made new frames with the leaded old glass on the inside and plain glass on the outside. While not as weather-tight, it's much better than single glass. While not as neat as your present windows, the new windows that have the interior and exterior lights with the spacers between the glass also look great and are at the present standards for energy efficient. We live in the PNW and used Milgard; less expensive than Anderson and Marvin, but so far I'm very happy with them.

Top down bottom up blinds? They come with an aluminum coating too (to block sunlight and thus heat). In our bedroom we installed 2 roller blinds on top of eachother. Both white. One translucent for privacy and one to darken the room. It was cheaper that the dual layered (cellular) blinds and I did not want foil. Not sure if you'd have the space for that (we insulated the walls from the inside, so our window frames are quite deep).

Well, for lack of a better idea, since you find it a drafty little space. I'm assuming the draft comes in on the right? Most of the necessities in the area are located of the left side; i.e. vent, thermostat, light switch etc. What I would do I think is caulk up the drafty spots, maybe even add sized poster board wrapped in batting I covered in a gorgeous fuscia with diagonal grosgrain ribbons every which way covered with a heavy velvet to be attached to the area above & below the window. (Of course remove the drapes that are hanging in there). This for the purpose of using it as a pin-it board for notes. Attach a table height board covered in felt to carry across the full width of the little room. Leaving just enough space for a comfortable little antique desk chair. Paint the back wall a bright cobalt blue, paint the ceiling a silvery pearlescent white. Find a way to attach a clip-on task lamp. And stretch a heavy duty enough wire across the top of the opening and complete it with a heavy doubled velvet drape with a drooping valance. Place a swag with fringe & jewels on it to be closed when not in use. Voila intrigue is yours!

Wow! What an incredible view you have! I think you first need to frame it out. I would suggest changing out the carpet with hardwood floors with a worn or weathered look. Definitely get rid of the plastic and replace with white base moulding. Next I would paint the walls a color in the pale grey or grey/blue family. Next, I would suggest some crisp white sheers to frame each window. In the pictures, it looks like the Windows on the right are two windows wide. If so, I would also place panels in the middle of those 2 windows to continue framing the view. These are for decorative purposes only and not intended to distract from the view. It looks like there is a big space between two of the windows. I would locate a large architectural piece to place on that wall to add some interest. Remove all the small items from the window ledges. Finally, I would love a round table in that space. Good luck with your reno!