Formal Yet Casual Entryway and Living Room

After a year in their brand-new Mediterranean-style home, Sally and Eric Tuchman still haven't decorated their front entryway and living room. Both spaces are completely empty, and Eric has started referring to the square-tiled living room as the "racquetball court." Since the Tuchmans already have a casual living room where their three young children spend most of their time, Sally and Eric would like to see this second living room become a more formal environment, where guests can gather; however, they don't want a fancy showplace from which the kids would be barred.