Love that shelf too, Fruitloop!!
If you need to make do, Walmart has small 2shelf bookcases for around 30 bucks. Then go to the hardware/home improvement store and get them to cut a thin piece of plywood or some such thing the same length of the shelving unit and an inch or two high. Attach that to the front, at the bottom of the shelf. Voila (sp?), you can display the books in the same manner.
For seating, go to a fabric store and get some large-ish remnant pieces in fun colors/patterns. Make up some simple pillows, with a zipper on one side, so you can easily wash them. You can usually buy the big bags of cotton batting fairly cheap. Kids can then lay on them, lean them up against a wall, etc.