Check out Lovesac Sactional furniture. I needed to make a similar compromise for my room and with an added queen foam mattress topper I've had nothing but compliments from guests. Plus being able to build different seating configurations is nice for variety and for small/large groups.
WTB: PSA XS15 or XS15se, PM me.
Small HT: JVC RS4910, Mits HC7900DW, Falcon 2.35:1 100-wide, Marantz SR7008, Triad Gold Omni SE & Silver Surrounds, PSA XS15-base, Oppo 103D, Tivo Mini, HTPC