Changing the worktops to a light colour will make all the difference. I've just had a new kitchen installed and even in a small area - about 2.5 metre sq - having a white worktop has completely transformed the area. The previous matt black surface just absorbed all the light. I've painted the walls white as well (previously a creamy colour) and now the area is so bright I've had to buy a blind for the window! Therefore, I'd suggest staying with the layout and looking at the colours for your new kitchen rather than creating unnecessary openings that will mean you lose cupboard space or other rooms. It's not just style, but function that is also important, if the space does not work for you, you will soon fall out of love with the house.

The room is large so you should have room for a chair plus it's impossible to socialise all sat in a straight line! I think I'd go for something antique for the sideboard. I was looking at mid century ones and most are pretty large. I came across this cocktail cabinet which I think is really nice and a steal? I'd put a light chair in front of the cabinet (for easy access) angled towards the sofa , an Acapulco chair would work and you can pick them up really cheaply, this one is from superstudio. I'd probably use an ivory sheepskin on it though which is beyond my poor photoshopping skills, dunelm do one. I'd probably go for a shade of blue for the chairs, this one is cult furniture but unsure of your budget so have included another link. Eames chairs would also work. I'd go for a beni ourain rug, I've used any old one to photoshop in but there are loads around. if you wanted to splurge there are genuine ones on eBay etc (they should be an investment plus they would with a lot of styles for the future) or try places like Benuta or Very for a replica. i forgot to ask if the curtains were staying? I'd repeat the brass for a floor lamp and I'd have a look in antique shops, eBay etc for some mid century ceramics just to personalise it and add a bit more character although the room is Lovely! https://www.ebay.co.uk/itm/Rare-Mid-Century-Teak-Cocktail-Drinks-Cabinet-Sideboard/232962028633?hash=item363d9e7459:g:ci4AAOSw6-Nbv2im https://www.ebay.co.uk/itm/4x-Design-Chairs-Retro-Seat-Fabric-Dining-Table-Chair-Set-Backrest-Dark-Blue/131753072895?_trkparms=aid%3D111001%26algo%3DREC.SEED%26ao%3D1%26asc%3D20160908105057%26meid%3D42c4bcb3b40c4b088514be370eb5f652%26pid%3D100675%26rk%3D3%26rkt%3D15%26mehot%3Dpp%26sd%3D232962028633%26itm%3D131753072895&_trksid=p2481888.c100675.m4236&_trkparms=pageci%3Aba916a75-cd80-11e8-b62a-74dbd1801b0c%7Cparentrq%3A645147a51660add898f3fb07ffecdaaa%7Ciid%3A1#rwid

Probably remove it. However why not try painting it and the walls a light colour then add a chunky shelf, mirror and decorative accessories. These pictures shows an example of the change it could make. It could prove to be a cheap transformation. If you don’t like it then rip it out. You won’t have lost much.

Even though you have fixed the source of the damage i would get someone to check the actual damage to make sure you dont have any rot/damp/mould lurking as if you do it will again seep through into the ceiling paper or the new plaster. We have had this problem with walls and in the end we were advised the plaster be removed and re done as the problem was the exterior wall and even though it was fixed the damage had been done and after attempting to paper over the damp seeped through and turned the wall paper wet. Better to check than do it all up and have to take it all apart again and start over.