All I can say is IKEA and Pottery barn and Pottery barn kids. All three websites have great family room ideas for small spaces.
We recently remodled our family room, and made it versatile so kids can play but it could be readily plumped up and tidied for entertaining.
My big coup in redecorating was putting in a tile floor and relying on persian rugs to soften the space. We've had incidents with crayons, paint, markers, and pencil scribbles, but I didn't care. All I needed was mop and problem gone. I love my IKEA couch with built in storage..and it folds out into a guest bed. Our room does it all. The prices at IKEA are great too. PB is pricey, but you can get great ideas and find similars at Target and elsewhere if you're cutting corners.