It's nothing that a couple of gallons of paint, a plaster repair kit, and a bit of tile couldn't fix. Oh... and some elbow grease. If you want to go all out, remove all the panels around and above the fireplace and redesign it. It's not a horrible room. Beautiful floors, baseboards, and windows.

The floors and woodwork look amazing. I would paint the walls a neutral beige or taupe in a shade that complements the floors. You'll probably need to take out the wood inside the niche area immediately surrounding the firebox with a dremel type tool and replace it with tile. It looks like you need to create a hearth for safety and the proper aesthetic also. I would go with large tiles that coordinate with the smaller surround tiles. If you are diy'ers it should be a $200-300.00 job.If you're not and need to hire contractors and/or if you decide to use pricier materials, it could run up to around $1,000.00.

My guess is that you'll have to talk to a fireplace expert to see about making the fireplace usable, repair the ceiling, and then you'll have to change the wall treatment, according to how you plan to furnish and decorate the room. I see lots of potential.

REPAINT(LOW COST. REMOVE FIREPLACE TRIM(YOU MIGHT FIND A SURPRISE HIDDEN IF NOT REPLACE WITH A VERTICAL AND HORIZONTAL MARBLE OR GRANITE HIRE A PLASTER TO REFINISH OR COVER WITH DRY WALL AND PAINT. ALL IN ALL NOT A LOT OF DOLLARS