you and I have about the same type of space (slightly reversed on the window wall, my longer wall is the window wall).
I like the idea of you getting an electric fireplace, put it against a wall and put a nice painting above it. You can find a nice painting at a local Kohls or Michael's or Bed, Bath, Beyond or whatever home-craft place you have nearby. From the painting, choose your colors. Keep em light, given that you have a small townhouse. Maybe accent one wall (The wall with an electric fireplace) with a darker color.
For your TV, get a Wardrobe cabinet that will fit it. That's what I did. They are tall and thin. Get rid of the dining room table and get a little loveseat to put there, or even better a long storage ottoman like I have. I found both the ottoman and wardrobe cabinet at Ashley Furniture. Then get a nice little living room table to go in front of your TV, and done!
If you'd like a picture of what I did, email me ASAP. I am moving the day after tomorrow, so everything is off the walls, but i can at least give you an idea of my house style, furniture placement, color scheme and paintings, etc.