So I was thinking, if increasing the item limit like we've been howling for would be too difficult... why not make it easier to block off parts of the house, or partition in general, instead?
I'm thinking specifically for a medium here (so not entirely sure how to make this work with a large's central staircase), but basically the idea would be to have two items. One would be for the downstairs and one for the up.
For the downstairs, it would be a floor extension. You drop it down and it perfectly fills that gap (covering railing and all) that leads to the downstairs. It's actual floor so any floor items can go on it without any problems, and you can apply whatever floor pattern you want for it. So if you wanted a section of tile or stone for a kitchen perhaps, you could do that without it affecting the rest of the flooring. And it would free up that space very nicely for use in designs. Like if someone wanted an extra large kitchen, or a downstairs master suite, or whatever.
For the upstairs, you would have something similar in wall form. It would completely hide the stairway, gap underneath, and banister without cutting off an extra foot or two of space trying to deal with partitions. It can hold whatever wallpaper or paint is wanted and unless you're in decorating mode you can't tell there's even a stairway there.
Branching off this idea, you could have a similar setup for hiding pillars with walls that take any wallpaper and are dyeable. You could also have prebuilt rooms along a similar theme.
I think for the walling things off, or pillar removal, that might work best as an optional interior feature in the same way floors, walls, and lights are set up. You activate it by adding the item to the slot, and can dye it from there any color you want. To add flooring or wall patterns, they're interactable so you just click on them to apply the specific pattern wanted.
For the pre-built rooms, those are actual furnishings, and count against your slots, but you can drop one down wherever you like and it will superimpose itself over the current walls and floor for whatever size it is. These would be simple squares and rectangles of various sizes, but if you add a door to it the door will slot through the wall without blocking anything off, and the same for windows. You could even have Emperor's arches if you wanted to create an open dining room or something. If you wanted to get really fancy you could also have the external and internal wall able to be done with different colors or wallpaper.
Heck, we could even have rooms with built in lofts or stairs for the smaller races to work with. The possibilities with this are endless and would add a whole new level of customization.
I grant, this setup isn't exactly peel and stick either, but it would radically cut down on the amount of slots we use decorating with partitions and would solve a whole lot of some of the more often asked for things and general frustration people have.