Thanks for posting! Sounds like you have a lot of ideas, your dad is a lucky guy! I would say that since this is such a small space, start with the smaller and more approachable ideas, because they will end up looking a lot bigger and more significant when completed because of the size of the room.
I like the idea of painting the sunken wall gray, and if you think it will make it look too small — perhaps a medium to lighter shade of gray? I also like the ideas of changing the mirror, implementing a hanging shelf, and adding a rug. Those changes will make a big difference and you’ll have a very well designed hallway!