So I ended up buying an electric fireplace shown here, http://www.dimplex.com/en/fireplaces...ergy_wallmount
which which doesn't require any exterior venting and have no requirement on minimum distance to combustable materials.
With that in mind, does anyone see any concerns if I were to carefully knock out all the protruding bricks from the wall that may be an exterior wall? though this wall appear to be still encased by an external chimney (show in image in replies above).
Then I would build a frame to fit the fireplace, and put insulation wherever necessary.
Also that would mean my chimey would be completely useless, is it ok to insulate the chimney? if yes, what's the proper way to do this?