If the room is the thing, how do I fix this?

Diagonal set up is good. Avoids a lot of problems for me (12x16x10) and as a bonus I ended up with a bunch of bookcases etc as sound traps.

Near field is good. A 6 or 7 foot triangle will give you a bit of space to get the speakers away from the walls and you can get a great image and lots of SPL if thats what you like. Obviously going to be a whole lot more problematic if they are rear ported and big. Doubtful that you are going to have any big bass problems - no room for the waves to get going. Assuming some carpet and furniture you may want to put some treatments in the corners - I did a little foam. Irregular surfaces are the key - bookshelves etc all work.

Nice comfortable place free of distractions is really good. Plus if you stay away from the TV, you avoid the temptation to turn your 2 channel system into a HT system. Better yet you get to build a HT system too!

See, its all good!

If you go for nearfield listening, which is best in a small room, room reflections aren't as big a problem. I sit approximately seven feet from my speakers and that's been my experience.
Was in a similar situation a couple of years ago and went with the smaller room as it was all mine and the wife couldn't care less what went into it so experimentation was the rule. A well-balanced small system can provide a very satisfying listening experience in a small room.
Take this with a grain of salt though as I'm not a critical listener by Agon standards. I can however listen for hours without getting bored or distracted by the system. Good luck.

Square-ish rooms suck. Avoid the cube if you can. Try diagonal speaker placement if you have to live w/that room.
You have a better shot at balancing absorption & diffusion with your living room & furnishings, and a couple of treatments than being able to overcome square dimensions. Cheers,
Spencer

I own two pairs of Shakti Hallographs in a big room. They are the biggest bang for my buck to date! I first heard these in the small hotel rooms at CES 2005 and 2006 and the rooms just seemed to disappear.
Good luck!

Paul

Watch these videos dealing with small rooms.

http://www.realtraps.com/videos.htm

Dave