Actually neutral rooms are very classy :) And adding a hand-knotted New Zealand wool carpet such as the one I've pictured would add a lot of coziness and ground the space, while complementing your striped chair. Small accents of colour can be added in artwork and on new sofa cushions. The fireplace makes a bold statement in the room, which could be compromised by giving the walls equal weight with bold colour. I understand that this is your family room, where you will be relaxing at the end of a long day and watching television. Therefore a calm, relaxing (yes, neutral!) colour scheme will achieve that. The charcoal grey drapes I described above should have lining, and they will add to the warmth of the room at night so you're not looking at cold black glass that's reflecting the room back to you. The colour scheme you have now is actually very nice--it just needs punching up a little with additions such as I described.

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You'll need to deepen the wall color for the contrast you want. One overhead light is not enough for your dark corner. That is what we call "ambient" light - just a way to turn something on so you don't fall over furniture when entering in the dark. You'll need both accent and task lighting - lamps. Your current furniture is very large and is eating up this small space. Before you replace it with an equally large "suite" consider mixing it up with a pair of chairs and an apartment sized sofa. Here are some inspirations for color and a pair of chairs.

If painting, use low VOC paint. When replacing things, look for low, or non outgassing furnishings. No sharp corners on tables etc. Choose safety features on blinds to eliminate strangling on cords. Non breakable ornaments/bowls down low. Breakables and hot coffees up high. A chest for toys, but sand down sharp corners. A small chair. Any tall furniture should be affixed to wall with brackets. Don't be in a tearing hurry to remove all kitchen walls that can have a baby gate attached to them. Burns by scalding in kitchens kill and maim.