jthonen -
At this point, since you are going to be ripping down a chimney, I assume it is on the outside of your 1940s house? It looks like you are in for a major renovation that is going to have a decent sized budget.
What I would do is take some of the money you would use for replacing the masonry, and pour that into a gas fireplace that will actually heat your house. Since you are on an outside wall, the gas line can be sent into your house from the outside, which won't require a ton of finish out changes to the rest of your interior.
Next, I would ditch the masonry chimney and choose one of two options.
1) If the fireplace is on a wall that faces the street, I would build a chase. A Chase is a chimney built out of wood and finished/trimmed out like the rest of your house. Inside the chase would be the fireplace pipe, which is stainless steel. It terminates at the top and can have a decorative fireplace cap placed on top to match the rest of the house's finish out, or can be a finishing piece to add character to the house. This whole ordeal would require a framing carpenter and a decent amount of lumber. Here is a very basic picture of a chase courtesy of google:
2) The most inexpensive way is to terminate the fireplace right out the back of the unit. I would only recommend this if the wall is not facing the street. There is a finishing cap on the exterior, but there are decorative caps you can place over it as not to show a piece of stainless steel metal around it. This way would still require you to build a platform for the unit and surround it in lumber and finishing materials, but you save the money that you would spend sending a chase all the way to the roof and beyond. Here is a picture of that option:
We call that a "doghouse" style termination. Here is a picture of a decorative cap you can place over the stainless steel termination you see above.
We call that a "beehive" cover, but you can get a metal worker to fashion any number of decorative ideas. I show you this just so that you don't get discouraged by the stainless steel piece of metal sticking out of the wall.
Now, as for the unit, given that your fireplace was masonry and was technically on the "outside" of the house and faced in, you can save a lot of the finishing materials that surrounded the unit on the inside, if you want to. This can keep the character of the older fireplace, but you can then just place the new fireplace behind them, from the outside, so that you get the benefit of the new, efficient unit plus the original surround finishing out the firepalce. This assumes the sizes match up.
As far as unit goes, there are lots of different kinds. I put a 8000CLX in my house. See below:
Heat n Glo 8000 series
It is a kickass unit the puts out a ton of heat, has a fan that you can control speeds and noise, and multiple flame heights to control heat output. It has a remote with a thermostat on it so you can set it to a timer, or you can have the remote reach a certain temperature and turn the unit on and off by itself. It is a real pimp daddy. Oh, and it can heat my 3500 square foot house on a 25 degree day with the attic fans circulating the air.
That can get expensive, and I got a pretty nice employee discount, or else that would have been out of my range. But if you are looking at replacing 20+ feet of brick, and you can cancel that out by putting in a cheaper chimney chase, or doghouse, then that becomes an option. If you need other options though, there are all kinds of choices. See below some of the units I recommend:
Heatilator Caliber
Power house unit that still looks great. Doesn't have multiple flame heights or fan speeds.
Heat n Glo 6000 series - smaller version of the 8000 series
All the same bells and whistles as 8000, just six inches smaller.
Heat n Glo Slim Line series
The Slim line series is a very narrow box, and can go places most fireplaces can't. The log's won't be as deep, but it still produces a nice flame and good heat output. I don't think they come with fans though, so it would just radiate heat.
Now all of these are direct vent fireplaces, which require gas, but is what you have to have if you want heat. They push 100% of the heat into the room, whereas a traditional fireplace with wood or gas logs pushes 90% of the heat up the chimney.
Good Luck.