I have my LA in an alcove off the living room that could be used as a dining room. Since I have a huge eat-in style country kitchen I have my dining furniture in my kitchen. The space was basically useless for us. It's the perfect size for my LA! Adjoining the alcove is a small bedroom that serves as my sewing studio/office/guest room. I've finally gotten it arranged so it flows well and is a pleasure to work in.
If I had a choice I would put my studio on the main level, unless you have an easy to access ground level entrance to the basement, some of your customers may be handicapped or disabled in some way and not be able to go up and down the stairs. I have had the opportunity for a separate studio and have passed simply because I did not want to heat that much additional space.