Hi there,
Being a much smaller space in volume, and having likely much more 'wall' closer to the speakers, the sound will be dramatically different as you've experienced. Acoustic panels absorb sound, and so they're usually used to treat close boundaries so that really intense reflections are absorbed instead of filtering the response at your ears. Without treatment, these high gain reflections can slur transients and "wash" out the sound. To literally hear it's effect, play some white noise through your speakers and move your head back and fourth. You'll hear a series of dips change up and down in frequency, just like comb filtering.
However, absorbers usually don't make the space seem any more "lively". Dynamic, yes, but not more lively. Instead, diffusors are used to keep most of the energy retained in the room while spreading the reflections out so they aren't destroying the music at listening position. Since the ceiling is so low, I would still probably recommend absorption there, but diffusion otherwise in the room.
If it's at all possible too I would look to relocating the desk (perhaps to the small corner behind and to the right of the couch) and centering your setup left to right in that area. This will ensure the bass is more symmetric in the room which should also open up the sound a good bit (and you're not getting as strong of a reflection off the small left wall like you are right now). Also, this way you can get equally effective low frequency treatments in the front corners of the room so that your speakers aren't suffering from low frequency modes like they weren't upstairs in the open room.
There's obviously a lot more to be said but treatment wise I would use this as a guide:
Acoustical Room Advice - GIK Acoustics
Obviously this is more set up for a studio instead of a HT or listening room, but a lot of the treatment positions would be similar. I would advise to opt towards the more diffuse route in the room, and treat the reflections off the ceiling and the bass with broadband absorption.