I guess that would depend. Do you both like the look of the fireplace? Or are you looking to update what is there to a particular style?
In the townhouse I had years ago I had almost exactly the same fireplace. Money was tight (when is it ever not tight, right?) and so what I did was remove the existing mantel, tapcon'd 1x3 furring strips to the wall and drywalled. We bought an inexpensive yet decent looking pre-fab mantel for about $200, painted it a semi gloss white to match all the trimwork and installed it with just a couple of screws. For the hearth and immediately around the fireplace we bought a nice granite tile and installed it with a 1/4" cement backer board underneath. For the side of the hearth we again drywalled the front and continued the base molding around the front. One point of note - when we secured the hearth tile, we allowed the cement board to extend 1.5" beyond the finished drywall on the sides of the hearth and supported the underside with blocking. You're handy, so I am sure you know what I am saying.
For our current basement project I actually removed the drywall and prefab mantle and am going with an applied decorative stone. It is a bit more work with the scratch coat, and can be a bit pricier, but the final result looks really nice. I am using Eldorado Stone. If I was actually started on this project I would send you pictures, but . . . .
Here's a link http://www.eldoradostone.com/walkthr...ving-rooms/#11
You could even reuse your existing mantel piece with this and it would look great!
Just a couple of thoughts. I must admit, I was half expecting a picture of you (or your wife) covered in popcorn from head to toe after scraping that size of ceiling!!!