To see potential in a small space, it helps to have real vision:
Best Use of Space: David Ries' former Chicago apartment, at 700 square feet. By reconfiguring the walls and doorways in his 700-square-foot apartment, designer David Ries gave the place a more expansive feel. The big thing is opening up the spaces to share square footage in the rooms, he says.This truly is a great example of how to live large in a small space.
See more photos here.
Personally, I'd probably replace the sitting area in the bedroom with a nice desk and another bookshelf or two, but this layout and use of space is brilliant!