Emilie - I think you nailed it when you said "I'm at a loss for how to make the two rooms into one cohesive space." I don't think they can be. Fous instead on how to divy up the two spaces you have into the 3 portions/uses you most want:
1. adult living room
2. kid/play/craft
3. exercise with treadmill

Empty out the back room and create the adult living space there since it has three walls to create a 'full' space. The front portion (where the couches are now) is effectively just a walkway from the back room to the stairs. This needs to be broken up. I think I would try tucking the treadmill under that sloping stair alcove and see if the filecab or other storage needs could fit there as well, then create a fabric drape that could cover that area when you want to hide it. The middle and opp side could be focused on a kids area... open when you want lots of floor and space and comparmentalized when you want cozy nooks for kids to play in. A couple 3 panel screens can be used to create free standing half wallsto break it up. They would also provide wall areas on which to hang art. Good Luck!

Have one room be a workout and play room and have the other have the couches and chairs in a traditional floor plan for conversation and tv watching. Keep the "living room" toy and clutter free and let the "gym" be encouraging for playing and working out

Also, get the couch out of that nook and away from the wall a bit.

i would put the t.v. w/entertainment stand where the futon-type sofa is (underneath the stairs).

It looks to me like they are two separate rooms? I am not sure how you could treat them as one and make it look cohesive.

I agree with the poster who suggested making the back area (away from the stairs) into the living room and putting the toys and exercise equipment into the front area. I am not sure how you would go about creating nooks in a space like that. I think just arranging the furniture in a comfortable way that allows you to walk through the spaces will be enough of a challenge (been there, done that!).

I agree with the others that you need to designate one as an "adult/sitting" room, and the other the "play/work" room. That means moving all the nice chairs, sofas and tables that you're going to keep into the front room and all the office/workout/toys into the back room.

It would help if you painted the rooms the same color - That always makes spaces flow together and feel more cohesive...
...but you're not going to want to look at the files and treadmill while you're visiting with friends - so I'd urge you to consider separating the spaces with portieres - ie: drapery panels - within the archway.

I agree with the other posters. I have a similar layout in my house, and I use the back room as a dining room, which I think is what it is meant to be. In my case, it's easier to make it look cohesive because both rooms are painted the same color and I have hung art that could theoretically have gone in either room. I think strictly separating them into a living room and a play/exercise room is the way to go. I agree with bepsf's idea of hanging curtains that you can close when you want to have a space that looks adult.

Yeah, without tearing down the wall, it's going to be hard to make this look like one room. I'd say to do a formal living room in one space, and a play/exercise room in the other.

You could make the area under the stairs the kids' nook. Kids aren't tall and wouldn't miss the overhead space, but on the other hand having kids' toys there might be a cluttery mess that you see when you walk in the door every day.

I also thought it was a good idea to hang a curtain to hide a corner that you use as storage.

If you used the front room as the living room, maybe you could angle the couch so when you're sitting on it you can easily see into the play room.

Since the wall colour can not be changed, use those colours as your starting blocks for your colour scheme. I would pair them with white and silver metallic accents.
Zone off each space with area rugs. I would do a light sisal and diy a nice simple white medium scale print on all the rugs to give the eye a focal point to help draw away from the intensity of the wall colours. Then start building your zones. I make a list then write down everything that I need for that space-then I select the furniture according to appropriate size and storage needs.
Another big thing you're missing is lighting.
In place of the long dark drapes-try a nice white roman. Sheer in the sense that it will allow light to travel into both spaces, but the fabric i see as a heavier type of linen just for texture. In each zone remember to include lighting. Every zone should have some form of ambient, task and accent lighting. This will add dimension and the light will act as a cohesive attribute for your space. Remember, we light surfaces-not spaces so when choosing your coffee table and end tables, storage etc. go with light pieces that will reflect the light. Try a series of white frames to help neutralize your walls. Lastly, Repetition, repetition! If you want your space to be cohesive use a repetitive piece throughout each zone. For example-floating shelves would be perfect for you because you have the nooks to put them in and they don't take up much space, but can maximize your storage. Hope some of this helps! good luck!

I agree, they cannot be the same room. As a mother of five, I would put the exercise equipment, filing cabinet and play area in the back room, otherwise you and your guest will be traipsing through toys to sit down.

I would also put a curtain and tie backs across that door wall, maybe in a floral or stripe that has the same colours as the walls, so I could close off the clutter.

Under the stairs I would put shelving in to create an entertainment unit for the tv, stereo, books and replace the couch with a loveseat, a comfy chair and ottoman that can double as a coffee table with a tray.

I like the couch where it is but would get a larger ottoman, get rid of that foot stool. Something you can move around, maybe with storage. You can use it with a tray on top when you need a "coffee table". Then on the other wall, I'd put a credenza with a flat screen on top (or even better mounted to the wall). A nice area rug in between. If you don't need/have a tv, but would rather have extra seating then maybe two slipper chairs opposite the couch but angle each chair in a little toward the center (not straight, will look took boxy). I'd also replace the filing cabinet with an end table or floor lamp. Some printed pillows and/or a throw blanket that brings in some of the wall color via a portion of the print. I'm thinking a zig zag or an ikat type of print might be nice.

For the back room, put the treadmill horizontal against the wall (that vertical placement looks awkward). You then could have the option of using a ceiling drapery track (west elm has one) and covering up the treadmill with a white drape when not in use or company is over). Across from the treadmill you could place the filing cabinet and the blue chair (again angle a little in toward the center). Then a big area rug for the kids to play on. I don't know what to do about the toys! I'm not a mom. What's the blue curtain thing? Is that a window? Maybe open up that curtain with a pull and put some big baskets below there to store some of the toys?

Dark wood floating shelves might be nice above seating area in living room or on the wall with the filing cabinet/chair.

Looks to me like 2 rooms already, they should have their own distinct look. I'm not sure how I feel about the dresser.

Hey there, Emilie here...

These ideas are great, thank you all for taking the time. You've given me lots to think about, but I think you're all right, and I need to admit defeat and make them two separate rooms! :)
I do think I'll make the switch, and make the bigger room my sitting room...I'll have to play around with all your suggestions, and see what works best for us... I'm really excited about this re-do now that I've got so many ideas to try out!