We have a playroom/games room. It has my sons Nintendo switch set up and then a mass of toys and a sofa. We have 2 x 4 kallax units with the boxes inside for toys and a single 2 unit with boxes inside for their craft stuff. We then have toys on top of the kallax and some bigger ones in the floor. To be fair I've come to terms with the fact it will never be a nice room aesthetically like the ones on pinterest. It's always a bit of a mess and never as organised as I would like.
If I had a choice between my dining room or their playroom dining room.every time. Nothing beats sitting as a family round the table, or playing play dough with my little girl, playing a board game together all 4 of us, crafting, making bloody slime there.....
I know she has the breakfast bar but that's where she is prepping food or folding the washing etc. You can't beat a dining table imo.
If it was me, I would level it out and get rid of the loo. We had a downstairs loo in our old house and don't in this house and I don't miss it at all. I would rather have the living space. I'd turn it into a dining room and maybe put her kallax in there with some nice boxes inside. She could still have it as a sort of playroom space, but they would be stupid to not get a dining table.