We have toys in the lounge although they all have a place to 'live' at the end of the day so that when the kids are in bed I can relax in a space without it screaming 'Kids' at me!

I'm fine with it for 2 reasons.
Firstly, I always find that kids want to play under your feet and to be around you, no matter how cool the set up is in another room Although there are now times when DD will play alone in another part of the house (she is now 3) she will always prefer to be near me eventually. As we spend a bit of time in the lounge, we have toys in there.
Secondly, I feel that the house belongs to the kids as well as us so I am happy for them to have their stuff around. I want them to feel it is their space as well as respecting the fact that we all live here, all have needs and we need to respect these needs. I expect their things to get put away and tidied up etc, just as I would do with my things at the end of the day. The trick for me has been getting things tidy. I have a pretty good system now of boxes and shelves for the toys and we have a 5:00 pack up time game using a very cool, energetic pack up time song that is 4 minutes of pure cleaning up madness [*it's pack up time, pack up time, pack, pack, pack, pack, pack, pack up time* - now I am singing it to myself ]. So far (2 months) it has been working really well and even DD2 at 12 months is getting into it!

I think Arcadia's idea of rotating is really good and it is something I do too. I try to keep the amount of choice low and keep the interest up by moving things around a bit. This way there is not too much stuff.