Posted: 02/09/2013 at 16:16
I would keep the existing bed and not extend the lawn. I have 2 little kids and they do not need lots of grass.
I would start by going over the whold bed with a garden fork to de-compact the soil, perhaps adding in bark and copost. It looks heavy at the moment and that will help drainage.
You can leave a bit for the kids to dig and sow seeds in: they will enjoy that!
I would plant some evergreen shrubs for interest. Bamboo, Phormium, coloured Cordylines (electric pink - google it!) will lift the area. If you like bulbs then they will be coming on the market now and they can be added after you decompact the soil. I would then cover the area with a mulch of bark to keep weeds from goring and to look nice. Add bedding plants next year with what you like.