We have a lot of bookshelves, so that helps. We're currently working on installing built-in bookshelves in our playroom/office, so then we'll have even more space (although some of that will go to toy storage).
What I do is take the jackets off the hardcovers, because they look nicer that way. I mix them on the bookshelves with figurines, vases, etc to keep it looking decorative. Paperbacks get stored in boxes (like these from IKEA) or baskets. I try to stick a label on them by author's last name (A-B in this box, S-T in this basket, etc). I only keep books I think I'll read again.
Kids' books are currently stored on shelves in DS's room, but as soon as we finish the shelves in the playroom they'll be moved in there.
Stacy
Wife to K
Mommy to A (5) and twins E & S (1.5)
The biggest mistake I made is the one that most of us make...I did not live in the moment enough. I wish I had not been in such a hurry to get on to the next thing: dinner, bath, book bed. I wish I had treasured the doing a little more and the getting it done a little less. - Anna Quindlen