I'd take an annoying dog over an annoying child any day. I have a small yorkie who is very excitable, but I have found small children thinking he is a toy to be a bigger problem than my 7 lb dog. I've had to suffer through holidays with annoying kids my whole life. Get over it... dogs are nothing compared to a bratty child.
If you are going to do a build-in as shown, I would continue the crown moulding around the top perimeter of the cabinets to make them look more built-in and also disguise the jog in the back wall.
