Looking at this again, the original layout is not that small. Personally I prefer "rooms" to open plan; I don't want to open the front door and see my entire living space in all its glory (or more likely mess), and that's before the heat loss that you mention.
I guess it depends on how many will be living there - if its a young family, you might prefer open, but if just a couple, why heat the whole house unnecessarily?
Of course, the more walls that you have, the more furniture you can have
If you were to reinstate the hall as was (thus cutting off the kitchen and all its works from your living space) why not have folding diving doors between the sitting room and the dining room? Coupled with a fold down/extendable table, you could then have flexibility to either have a cosy dining room when there are just a few people, to opening up for proper entertaining when there are many.
It depends on your particular needs of course.
And I would also be mindful of the area and what is "trending".