It looks like the best option is putting the T.V. on a built-in shelf or stand that fits inside and is flush with the wall.

Putting a tv over a fireplace is not a crime. It's a personal preference. And sometimes it's your only option because of the layout of the room.
I would say go for it.

given this situtuon, I would put the fireplace above the TV in the cavity. I would prefer that it is mounted to the wall without a stand.

tha cacity looks deep enough to accommodate the depth of most current flat screen TVs

The placement of the TV really depends on your position when you watch it. If you are relaxing in the furniture, I would keep it low or else you will be calling the chiropractor ;) if you are standing up or sitting at counter height tables, go for the higher mount. If it is a mix, mount on the stud in between!

thx for all the responses.....and probably go with the first suggestion. it is hard to come up with a build in shelf though.