OP again...
Thanks for all the suggestions!
As for just painting it, I have nothing against painting (and did PLENTY in old house), but the previous owners literally JUST painted the room so the walls are fresh an clean. It's also not going to be something I live with for much time on a day to day basis, so I"m not going to bother. Trust me - if the Master bedroom was this color, it would have already been changed!!)
I'm thinking I'm going to take a combinations of all the suggestions... turn it into a kind of tree house room (there's one really big window that looks out to trees, so it will work well! I'll get some cherry blossom tree decals and scatter a bunch of frames in the "leaves" so that the kids can put whatever artwork they want up on the wall. Something like this (of course, there's a more than decent chance this will be a pintrest fail, but whatever...)
A bookcase, some navy or grey chairs of some kind (maybe beanbags or some other squishy kids chair) and toy boxes and we should be all set.
I could always use more ideas. so please feel free to suggest anything else!