It works best to follow the principle that any decoration smaller than a cantaloupe will simply make a room feel cluttered. Work with a few good larger pieces to make everything feel more spacious and decorated.
Throw a few shelves up high and suddenly your eyes will be drawn to the extent of the room, making it seem like there is more space to live in rather than getting stuck staring at the ground in an already small space.
Keep your sofa off o the wall. Even though space is tight, if you can just find a few inches at least of room off of the wall, sitting down wont FEEL as cramped.