Thanks for the photos..... still could use one from on the deck looking out to see what the view is....
Couple of design things..
If you pave that area then you have to either build some retaining to hold the paving in place on the low side and then build the level up, or cut in on the high side and retain the existing earth to stop it dropping down on to the paving.
Stepping down to a deck/patio doesn't usually have as appealing a feel as walking out onto a nice big deck imo. Ucrew has done a very nice job though.
Visually, you have a barrier in the fence around the space making it a little room in an outdoor area.
You already have a deck, and I would extend what you've got to make it an entertaining/outdoor lounge area.
I am assuming you want lifestyle, so why not bring the outdoors in?
Open up the wall with the door to full width with bi-fold doors as pictured below...
then extend the deck to allow room for some nice
full width timber steps down to the grassed area. I would put the steps on the side with the best view/open space assuming it is from the direction you have taken the pictures from. I say full width steps as they a) open up the barrier, b) are agreat place to sit and natter with guests while cooking a barbecue and c) makes the fact that there is no rail safe.
If you feel that you want to really make it flash, you could then extend a roof out, simply made with timber frame and line the underside as shown below (but larger obviously)...
You could then build in a barbecue/outdoor kitchen and install speakers from your internal sound sytem for outdoor use, with a couple of nice flush mounted down lights for night
In the photo below I have created a boxed look around the base by simply cladding a timber frame with stone.
In either case I would try to use a more modern perimeter fencing that doesn't tend to restrict you in.
Our styles in Australia (metal glass etc) may not suit your style of housing so my tip would be to go and buy some local pool magazines where they usually show outdoor decks and fencing etc that you could blend into your style.
Cheers
Here's a couple of websites too
http://www.poolspaliving.com/Shop/index.asp
http://www.masonrymagazine.com/3-04/outdoor.html
http://www.hpba.org/consumer/2/OutdoorLiving.shtml
http://www.hpbexpo.com/
http://www.gopatio.com/deck-building-basics/
http://www.concretenetwork.com/concr...tio/index.html