After:So what we have done:
Painted the ceiling white and the wood paneling cream. Added trim (baseboard) and painted that white. Put in a carpet over the 1974 hardwood floor.
Added wall lights. Replaced the iron railings with a drywall half wall, and topped it with stained pine. All the electrical has been updated with new fittings, and new sockets have been added to the half wall. We moved the computer and it makes the room seem bigger.
We have taken the sofa from the living room and put the green sofa down in the new basement. When the house goes up for sale we will also put the matching green chair down there as well.
This was not a cheap reno, but really cheap compared to doing the attic or the new basement. However the difference it has made was well worth the expense.