If by lower level you mean main level - I'd go with that. If by basement, I'd have to ask how warm is it in the winter and will you have a way to heat it to a comfortable level (my situation now).
I'd also take the larger room and add more lighting options. Remember mirrors reflect light too so if you can add one or two to the walls that will help.
Is the second floor near where someone may be sleeping while you sneak in early morning or late night sewing?
Guess I'd have to say lower level