Humm, unless I missed it, is your larger lower level room on the main floor or down more stairs? Your upper level room is obviously upstairs.....so do you have stairs regardless of which room? Do you have any type of physical limitations that would make one room better than the other for you?
Personally, I would choose the larger room so you have room to expand if you need to. You also have the ability to make it a multipurpose room if you enjoy other crafts. You can always add any additional lighting you need and the beauty of that is being able to put the lighting where you want it. There are so many natural lighting products available (ceiling, floor, table type) that your only limit is your imagination. Have a grand time creating whatever room you choose!!!