If the room is the thing, how do I fix this?

Square-ish rooms suck. Avoid the cube if you can. Try diagonal speaker placement if you have to live w/that room.
You have a better shot at balancing absorption & diffusion with your living room & furnishings, and a couple of treatments than being able to overcome square dimensions. Cheers,
Spencer

If you go for nearfield listening, which is best in a small room, room reflections aren't as big a problem. I sit approximately seven feet from my speakers and that's been my experience.
Was in a similar situation a couple of years ago and went with the smaller room as it was all mine and the wife couldn't care less what went into it so experimentation was the rule. A well-balanced small system can provide a very satisfying listening experience in a small room.
Take this with a grain of salt though as I'm not a critical listener by Agon standards. I can however listen for hours without getting bored or distracted by the system. Good luck.

Diagonal set up is good. Avoids a lot of problems for me (12x16x10) and as a bonus I ended up with a bunch of bookcases etc as sound traps.

Near field is good. A 6 or 7 foot triangle will give you a bit of space to get the speakers away from the walls and you can get a great image and lots of SPL if thats what you like. Obviously going to be a whole lot more problematic if they are rear ported and big. Doubtful that you are going to have any big bass problems - no room for the waves to get going. Assuming some carpet and furniture you may want to put some treatments in the corners - I did a little foam. Irregular surfaces are the key - bookshelves etc all work.

Nice comfortable place free of distractions is really good. Plus if you stay away from the TV, you avoid the temptation to turn your 2 channel system into a HT system. Better yet you get to build a HT system too!

See, its all good!