You owe it to yourself to go here:
http://www.saecollege.de/reference_material/index.html
and read the part on acoustics, and check out some of the studio plans.
If you've got carpet in your live room, and it sounds good to you, that's fine. If it sounds good it is good. But as a general rule, carpet tends to absorb only high frequencies, making the room have a bass-heavy response.
Wood flooring is expensive, but if you can afford it, its more neutral as far as absorbtion goes.
Inexpensive acoustic treatments would be some cloth covered 703 set up as wall panels in the room. Don't use foam!
703 is a product made by
Owens Corning. Its a rigid fiberglass insulation, and comes in 2'x4' sheets with thicknesses varying from 1" to 3". You will not find it at any home improvement center. You'll need to look for insulation suppliers in the yellow pages.
As far as colors go:
Warm tones, like reds, oranges, purples (shades and variations thereof) tend to be very relaxing, especially if lit effectively.
Cool tones, like yellows, blues, greens (shades and variations thereof) tend to be more ....energetic, and some people say, induce creativity.
So, take that for what its worth.