If I were to do something like your wanting I'd frame out that corner w/2X and cover it with drywall.
Something like this:
The problem you have right now is the switches on both walls. With my thought you could leave the switches next to the opening (left in pic) and the other leading to the kitchen could be relocated to the side of the "new wall" of the niche. You could add the light or break the height of the span in half and have a light for both (as in the picture). Add stanchions to the sides for glass shelves-the light will penetrate through.
With that kind of height, a free standing piece is not practical.