Pallet Bed for the girls. I like this, especially for a temporary spare bedroom in my craft room" solution. I think I would actually hang the painted pallets vertically in my craft room when no guests are here and use the pallets like a giant Idea board.
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.