Always a problem 237. Something I've done before, is to make up traditional shutters inside the window. Decent, hardwood shutters would look terrific, but would, obviously keep out the light as well.
So, how about shutters made with a simple frame, and then glazed. (If they can take the weight, 6mm toughened or laminated glass is pretty good at sound insulation.)
I'm thinking of something like a cabinet door you would have on a glass fronted display cabinet. Hinges, knobs, fixings etc .......... all to your taste.
Positioning would depend on the depth of the reveals and position of sill etc.
The inner face of the wall usually looks best, rather than being tight up to the window frame.
You'd have to fiddle with position of curtains etc. Personally, I'd not have curtains, just a blind fixed right in front of the window.