Update:
We have decided on putting the TV on the wall opposite the kitchen, to allow viewing from the kitchen, and we'll just put the sofa against the window wall.
We are going to chase into the wall (not sure which side of the wall yet, we might do it on the other side where the stairs are) and bury all the cables.
The understairs cupboard is bigger than i remembered (approximately twice the size of the diagram above). And is going to be shelved out. The rear wall of the cupboard will be used for dvd storage, and the right hand side (when viewed from the living room) will be used to house the dvd player, sky digital box, and PS3. With additional space for an Xbox 360 or other device.
Me and my friend have booked next week off of work and will be getting started on the decorating. (Unfortunately we will be doing other rooms aswell so we wont get it finished)
Our sky digital is being organised today. The TV will be ordered tomorrow and then delivered next week, hopefully. And we are yet to choose a suitable bracket to mount it on the wall - anybody got any suggestions?
I still haven't chosen a surround sound system as the ones available at my local dealer were way over budget; i haven't got £1,200 to spend on a 5.1.
I will be looking at another dealer tomorrow - are there any online shops that i might be able to purchase a good system for under £400?
I am yet to take photos as i've been pretty busy this week, but i will try and take some of the room this afternoon.
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BTW, if the fire isn't live then a fishtank looks cool instead (at least, we thought so).
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Do you mean embed the tank into the fire place?
Have you got any images of yours?
Thanks for all the feedback, its much appreciated and has helped a lot so far.