Turning Garage Into Kids Room?

We are hoping to turn our attached garage into a kids tv/play room this summer. We have several issues we are looking at...

When we bought our house it had these two HUGE overflow watertanks in the garage that serve as a back-up because apparently the well doesn't pump enough water for this size of house so it has these tanks to hold the water for heavy use. The hot water tank and heater are also in this garage. The floor is cement and we wanted to lay down laminate flooring, but there is the traditional water drain in the center of the garage floor. We had also considered putting up pony walls to cover the ugly tanks and to keep children away from the hot water heater and heating system. The tanks tend to sweat in the summer and we have to have a drain for that. We don't want to have to tear up the cement floor to move the drain closer to the tanks, but what else is possible? We live in Alaska and can't just put a feed pipe through a hole in the wall to the outdoors.

Everything would freeze.

Our other dilemma is that after the house was built, the second owners (whome we bought the home from) added central heat and the heating ducts go from the heating system across the ceiling of the garage. This isn't a big deal visually, but we are having to figure out how to heat the garage and wonder if all we have to do is cut a hole in the ductwork (it is all aluminum sheets, not the tube type) and place a vent cover over it.

We are pretty sure that we would be required to have a wall with a self-closing door around the heating system and hot water tank. That is pretty much the law here now. There is currently one on the door between the house and the garage, but my husband had discussed removing this for a more open feel. I don't see a problem with leaving that existing door on there but we may still be required to have one on the heater/water tank because the garage would become a living area.

Any ideas?

Tator Bug