Ideas on how to best use this inset?

How about a reading Nook? Build a mini library?

A good place to house you stereo and speakers. If you have pets a nice place to put a built dishes and food storage. Build in a bookcase. If you collect things this would a nice place display them. Seems like natural place for a bar (juice or alcohol).

The proportions are so off and blocking your doorway, I would rip it out.

How deep is it? Would it work well to add bookshelves? . Are those " seats at either side actually seats? are they hollow? is there useable storage space there? Might the " seat storage" work better with doors on the front opening into the main area of the room?

If you have oodles of space to spare You could surely find three statues that you like and just place one on the floor and one on either " seat" . or add a third something for variaey in height or one of those ' suspended shelves" for a fourth level or " depth depending on the sizes/ items. What stuff do you own already that might deserve to be in the spotlight and the conversation of your living room?

A vendor at antique show this spring had a remarkable and large taxidermied peacock. It was about 5 1/2 feet tall and would look absolutely stunning in that center space. If you are thinking along those lines you should also imagine some way to light up the space for a dramatic sort of display. That would be fun! I bet I could track down the dealer - was more than $500 I think? but it may have already sold.

Another antiquey idea is to get a manequin or dress form and create a persona there. - he/ she could change with the seasons or holidays or serve as a witness, a companion, - a monster , a caricature of someone? That would be a conversation starter every time , I'd say.

small floating shelves above the seatS then wider off centre ones down the middle and fill with books. You’d have you’re own mini library/reading nook

Ah, yes, that would make a slight difference to my reply! Good Luck!

What about and extra seat/bed? You can fill the space between seats with a box, where you store blankets and pillows; and make a cushion to fill the space between, over the box. Decorate with cushions and little paintings on the wall and there you have a sofa or a bed ;)

First thing that came to mind was a game nook but that might be too busy for what you are looking for. My next thought was to install a salt-water aquarium. Whatever you do with it, good luck and let us know.

a LARGE fish tank

I like the idea of extending the bench for an extra seating area. The addition of a long, thick soft cushion and fun printed pillows would make it a welcoming space.

I would probably try to find a way to cover the three openings at the top first. There's always wainscoting or something to make it appear like a soffet, but, it could also be an opportunity to add some soft lighting by simply covering the opening with some framed pieces of clear textured glass or maybe a pretty translucent ceiling tile, cut to size, with the lights behind them. Small insert lights above the benching is an option too.

Maybe a bright pop of color would look good on the back wall, or a wallpaper print, then hang a large mirror to open up the space and make the room look larger. Or, if you prefer a vintage look, barn boards, ship lap, or wainscoting could be used on the back wall, or the face of the wall and bench. So many options ....Good Luck, I hope you share your results, I'd love to see what you end up doing. :)