DH is in the process of building ours a cubby, and we're doing the chalkboard thing. Ours already have a kitchen that my dad built last xmas that is going in there, but I like Kim's idea of the bench so that it could be anything they want! But if you want to go the kitchen route, Dad got his plans off a blog by a lady that converts Ikea flat packed furniture into different stuff - so the kitchen used a couple of bedside tables. It is an absolutely awesome kitchen.

Otherwise, what about a cot or little bed for babies? maybe put a mail box in to it, so the could play post man (hmmm, I think I might get DH to do that!) chairs and a table? window boxes for plants?