I would do three custom roman shades in a fabric of your choice. You would lose a bit of the arched top though.
Or you might be able to mount a rod, without finials that go right to the walls on either side, just above the center trim. It looks like the edges of long curtain panels might just hit the edge of the trim then. Good luck!

I think maybe just make cooler, custom roller blinds. There's a few tutorials on the web. It would be super low-cost, and you'll still be able to see the cool architectural details.

How about cafe curtains?

How about cafe curtains that start halfway down?

I can't find the picture, but I've seen something where they put curtains up on a window like that without using a curtain rod. They used super nice fabric and hung it from rings at each corner of the windows. Two could go at the top of the middle window and one on the outside corner of the outer windows. It looked really amazing. Sorry i can't find the picture.

Stained glass wondow film.
http://www.homedepot.com/h_d1/N-5yc1v/R-100014505/h_d2/ProductDisplay?langId=-1&storeId=10051&catalogId=10053

thank you all for your suggestions! i should added that the window panes behind the roller shades have leaded glass which you can't see from this picture, but makes the windows even more interesting and very pretty! i am so torn over what to do next! so many good ideas! thank you again!

Maybe balloon roman shades like the 5th picture on the site below. Keep them the same length at the bottom.
http://traditionsjournal.blogspot.com/2009_07_01_archive.html

Or just curtain panels on one rod above, so you can't tell the windows are at different heights.

How far from the wall is the radiator. Could you do a long rod across the whole wall at the top of the shorter window height and just pull the panels to the sides when not in use? That would leave the top of the arched window uncovered though so not as uesful for light. Alternatively what about top down/bottom up honeycomb shades hung at the top of the shorter window height. Go for a color close to your molding so that it is not as noticeable. (the multiple shades on one headrail is also a nice option for this layout)
http://www.smithandnoble.com/webapp/wcs/stores/servlet/SNAllAboutProductDisplay?storeId=10101&catalogId=10101&articleid=2212

Editing my comment a bit after looking at the picture again. Hang it just as the bottom of the arch - bottom of the molding on the shorter windows (or if there is a seam/frame on the arched window - hang them there)

thanks kianandliv! the radiator is very close to the wall, about several inches, so not much room there at all and the problem with hanging a rod across the whole length is the roofline! i could hang a rod on the moldings of either end and as you suggested, leave the arch exposed--that might work. and i have smith & noble shades in other rooms of the house and like them in terms of price, quality...i was considering these curtains from pottery barn kids (to hang as mentioned above)--what do yout think?
http://www.potterybarnkids.com/products/mini-dot-panel/?pkey=e%7Ccurtains%7C36%7Cbest%7C0%7C1%7C24%7C%7C1&cm_src=PRODUCTSEARCH||NoFacet-_-NoFacet-_-NoMerchRules-_- (light pink in mini dot)
however this would leave moldings on ends somewhat covered....all my problems should be like this one!
feedback please!

How about using top down bottom up shades of your choice. They come in bamboo, fabric or many other options now. This way, at night, you could close them all the way but in the day you could pull the shade down to the halfway point (like a cafe) and still expose the beauty of the window. I think if you do curtains and shades it will just be too busy for the eye and take away from the beauty of those windows. But by doing something maybe in a bamboo, you would be adding interest due to the texture but without adding a ton of business. Does that make sense? The top down bottom up shades will obviously have to be made custom but it could be the only answer to having complete darkness and privacy at night while still keeping the beauty during the day. Good luck! Fun room by the way...very cute!

thank you again for all of your feedback! i really appreciate your help!!!

I have to say, I don't have any different ideas than from the commenters above, but I was wondering if you would be willing to share where you got that drum shade w/ diffuser for your ceiling fixture? Our house is of the same era (1930) and we have a couple of built in (not super attractive) ceiling mount fixtures that are imbedded in so many layers of (presumably lead-based) paint that I am reluctant to just change it, and am looking for ideas of ways to cover it up. Thanks so much!!

i know what you mean about layers!!! between wallpaper and paint, it's amazing!!! one bad color/paper after the next!!!

there was a fixture original to this room, but it was dingy and we wanted to update it for my daughter. i found this lamp at land of nod. it comes in several colors. it is an entire fixture, not just shade. not sure if you could remove....here is the link: http://www.landofnod.com/kids-ceiling-fixtures/kids-room-decor/hangin%27-around-lamp/f5089
the height of the lamp is adjustable--you can hang lower or higher--this ceiling height is lowe, about 7ft, 6" if that helps.

although this is not period, other sources for period lighting and hardware that yo may like and we have used in other rooms include: arroyo craftsman, rejuvenation lighting, and schoolhouse electric. check them out if you haven't already!