Position a large, lightweight picture or painting to completely hide the niche with a natural-looking solution. The piece should be lightweight to allow you to easily remove it when you want to watch the TV. Lean the artwork against the wall on the mantel or use small picture hangers.
Create the illusion of a window where the TV niche is. Hang attractive drapes or curtains or install shutters that complement your decor to cover the niche. Open the shutters or slide the curtains out of the way when you want to watch the TV. Use long, floor-length drapes if you want to cover the fireplace as well. Shutters -- or painted cabinet doors -- can also lean against the wall on the mantel to cover the niche.
Install a Roman shade over the niche that can easily be pulled up to expose the TV.