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I'm surprised but I actually like the look of that light, looks like it was meant to be there in the first place, personally I would of gone for a small florescent and a valance as previously suggested.

My first thought too, probably cheapest option too! - I would say the last beam does seem to be in the way a bit though, even if you did have a removable banister, no way of moving it left a bit?

You may want a builder with some structural knowledge to take a look at the section above the door there, it doesn't look as safe as it could, and the cracks on the left hand side of the door moving upward don't look good.

If its a leak, as previously mentioned it needs to be fixed otherwise a good scrub, a dehumidifier and a good bit of circulation (keep those windows open every now and then) and you shouldn't run into too many troubles.