Sorry, I don't have any lighting suggestions, but I adore those great slipcovers! Where did you find them?

I bought what I call a "light bulb on a rope" at Ikea a while back for about $10, and a shade for it for another $9. The cords are 15 feet long, and I just screwed a hook into the ceiling and hunt it where I needed it, then plugged it in near the floor. It's one of my favorite lamps.

i've found that dimmers don't work with compact halogen light bulbs

We never use the overhead lighting that is in our living room - I hate overhead lights. I find that a few table and floor lamps provide plenty of light.

From the photo above it looks like you have an awful lot of seating in that one little room. Maybe you could switch out a chair for a side table or two and then add a couple of table lamps? That way your lighting is where you need it - lower down where you are actually sitting.

Wall sconces could be a good option too. There are so many different options out there.

Do you need ambient lighting or reading lights or both? I, too, hate overhead lighting so I opt for lamps. You do have a lot of furniture in the room. We can't see the entire room but I wonder if you could put the loveseat on an angle in the corner (bet. door and window) and put a lamp on a table behind the loveseat. Put a floor lamp next to one of the chairs and use candles, uplights and strings of twinkle lights for atmosphere.

I also love wall sconces but unless you have seating near a wall where the sconces would actually do some good they would only function as ambient lighting.

Seeing more of the room will help in giving better advice.