This is a nice-looking living room with smaller rug. Perhaps the key is to frame the rug with sofas / sofa and armchair combo / sofa and the window. And another trick is to fill up the room so the size doesn't look awkward.
Not sure what I think about using lighting in side the cabinets in the craft room. Maybe glass front cabinets on top of it? I tend to put small lamps into book shelves. So we are going to need outlets in the bookshelves. Any bookshelves in the house.