I would use the larger room for your craft/quilting room. I would put my sewing machine/table in the middle of the room and put all of the "storage" areas along the wall, using bookshelves or bookcases to take the items "up" towards the ceiling so you free up the workspace and flooring. Some people put drapes/curtains up but I prefer shutters or blinds so you can open them completely during the dark and dreary days. Have as much good light as possible, one ott over the cutting area in order to match up the good colors. Go for it! You owe it to yourself. We all need that at times in our lives.