We decided not to demolish the soffit area, but still needed some way to deal with it. I put the embossed, analgypta paper up there before this redo, but painted it a bit differently and now added crown molding above the cabinets.
To make the ceiling appear taller in a really small area, I designed a canopy over the sink, a niche over the prep area and a new open display cabinet on the other side. All of these elements draw your eye up to the green ceiling and make the ceiling appear to be taller than the 8 feet it is.
Here is a close up of the canopy. It is made of wood and accented with small tumbled marble squares. The whole thing is painted flat white and antiqued with raw umber.
I used a grape vine stencil to do an embossed stencil and then added some sculpted grapes (air dry clay) for more dimension.