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.

Had you considered a wall mural to give distance rather than an overpowering colour shape?

Is it possible to open up the space inside? Maybe create a feature wall like this, but not as expensive as marble!

This is the colour I would like or is it too much?