Small spaces can be a challenge. I know first hand, as we live in a 1914 2 story classic "Prairie Box"(yes, that is a real term!) It's rather compact 1140 sq. feet makes it necessary to multipurpose rooms to get the most out of our living space. We're in a constant state of renovation, as I'm sure many homeowners can relate. However, the kitchen and dining room are largely completed which has resulted in a much more usable home.
I have always found that most of my crafting and creating occurs on the main floor. I don't enjoy being shut in some corner of the home and find it much easier to pick up a project and get going when everything is right there in the open. With a 2 year old, I can even manage to orchestrate "craft time" in which Mommy secretly works and son plays away with crayons and playdoh. He's often none the wiser *wink*
Some of my favorite items in the space are a vintage mid century yellow Krueger armchair (so comfortable as a desk chair!), thrifted aqua, chartreuse & grey fern curtain, Amy Butler framed scrap paper, OneupDesigns Birds in Flight wall graphic and an antique pale blue mixing bowl.