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.
For even more storage, consider hanging shelves up high that run the length of the room. You won't loose any floor real estate at all, and you'll gain a lot of storage space. Design Dozen: 12 Clever Space-Saving Solutions for Small Bedrooms