Here is a perfect example of how to hang simple panels. Rod is ABOVE the frame and extended onto the wall so that the fabric clears the glass. There is no need to cover higher transom windows. They look great unadorned. Here is another suggestion for transom and double hung. Transom plain and affordable matchstick blinds. And then there is the window treatment that takes care of it all. This is my #1 favorite…the plantation shutter. Not inexpensive, worth the investment, you can leave them as is or you can hang panels for more color, easy to clean, adjustable for any light/privacy needs and you will have them the rest of your life. If I were you and just starting out in a new home, I would do plantation shutters, and if budget-minded, do one room at a time.

There is nothing wrong with having the board for the pelmet sitting on top of your window architrave. I can't tell much from the photo you have provided, but how an entire wall of curtain would look would really depend on the colour of the curtain. If you had navy for example, like you have now, would make the wall similar to a feature wall and would affect the visual proportion of the room. However, if you had light coloured walls and a pale coloured curtain then the wall of curtain will add to the lush look to the room without visually altering it.

Another suggestion - sheerview blinds. http://www.bosetti.com.au/index.php/interior-products/sheerview-elegance-blind/ Available from all major blind suppliers. These blinds allow you to control the light totally from sheer to block out; block out 99% UV; available in large range of colours; gives the look of shutters with the softness of sheers all in one neat product.

another idea if you had a plain pelmet that was within the alcove that came from the bottom of the picture rail to the top of the window and flush with the walls on both sides painted the same as the wall colour., you could then run your black curtain rod across the alcove pelmet which would look like the wall. When I had my Ferderation House we painted the bedroom walls up to and including the picture rail in the same colour. The wall above the picture rail and the ceiling were painted flat white, along with skirting boards, an old painter told me about this and it looks brilliant. A couple more photo's for you with different looks This is similar to what I have tried to explain by running a plain pelmet across the whole alcove and then the black rod running from either side outside the alcove with the curtains against the outer wall, the pelmet would look like part of the wall.