*photo added*I can't seem to add another photo but the stairs and front door are directly behind the sofa by the window

You can't have the tv where I suggested then! Maybe try the tv on the cabinet on the right of the fire as you look at it. Move the nearest sofa away from the alcove by a foot or so and pull the other sofa closer so they make an L shape, then arrange the rug under both feet. I would probably also get a coffee table to tie the sofa arrangement together. It does mean that your walkway into the lounge becomes the front door end but maybe try it to see what you think? Or the other option is where I first suggested the sofas but with the tv over the fire but it might be nice to make more of a feature of the chimneybreast? Or finally, how big is the area under the stairs? Could you do something with that? It's hard to tell from the pic?

You have a fairly small room and making the chimney breast a feature wall will chop the room up. Your TV is small and will probably fit on the storage cupboard to the left or right of the chimney breast. This will allow you to have a taller piece of furniture with artwork over or create a fire and surround.

Can you move the sofa that has its back to the stairs so it's more centered on the chimney breast? You should have room to come in from the kitchen and also from the stairs, either side.

Cushions with green (to match the rug) and another bright colour will add to the room. Paint the walls in a pale tint of the other colour to give interest to the walls and add warmth.

Thanks for the great ideas. I like the idea of putting the tv on a unit, but I would have to think of somewhere to put the sky box and playstation then. With the furniture layout it is very tricky. I should have explained the lay out better. It's basically one long room so I have dining room at the back and need to walk through it to kitchen and bathroom which are off the dining space.

What are the dimensions of the room, the new (?!) sofas and table? Are you keeping everything that was green?

Going back to original options with the sofas opposite each other, can you fit a tv unit under the stairs as that could look quite good? With regard to the L shaped arrangement with the tv on the unit, you could drill a circle in the back of the unit and store the play station and sky in there. Another option which I think could work is to swap the dining and living round as the dining end looks bigger. Have one sofa on the kitchen wall with the other opposite ( place the sofas about a foot from both walls) and hang the tv above the radiator. You could make a feature of the room with a built in tv, Sky and radiator cover, as per example attached from Andre hodges. That should still give you at least 4ft for a clear corridor to the kitchen ( on the basis the 7ft measurement you gave was from the side of the kitchen door!) I wouldn't paper the recesses now I've seen the whole room. Maybe considering papering or painting the kitchen wall to Bring the wall in so as to make it feel wider and give more interest to the lounge.

I would paper the front of the chimney breast and the window wall, then paint the alcoves in a shade of green taken from the paper. Some wallpapers that I think would look great:

http://www.wallpaperdirect.com/products/iliv/twig/127051

http://www.wallpaperdirect.com/products/albany/candy-stripe/126703

I meant add - I think jonathandb's suggestion of using the previous owner's sofa arrangement is on the money. If you go with that then considering using one of the smaller Kallax room dividers from IKEA between there and your dining room which you could then mount your TV onto.