What about mosaic tile? Lots of colors, styles, sizes, and finishes to choose from. You can also mix tiles or keep it simple and uniform - whatever you prefer! This fireplace was done in a single color of iridescent tiles, very sleek and modern! (other colors available!)

Good that the heat/air system is over the door and doesn't interfere with your decor too much. It appears the ceiling fixture to the right of the FP might indicate that the dining space is there. Put a sofa in front of the FP and two small accent chairs with it, facing each other over a round glass coffee table. Can you wall mount the TV left of the FP? I think the room is too narrow to put the TV above the FP - you'll strain your neck. If you mount it opposite the FP, a sofa and two chairs could work but will need to be small scale - try apartment-sized seating. The sofa could face the window with the chairs opposite it. You could turn to see the fire or to watch TV. Swivel chairs come in handy in such tight space.

I agree with lefty. Really think you should cut back the area. Even if you don't pave in the degraded area just plant it will look larger. Two levels shrink the space one level feels more like a room. Also I can tell the fence is your neighbors because the rails are facing your side. I would face the fence so that it looks better in your side.

A plug in?