After they left the room with armor, the next room was the room hung with green.
If the harp had been in the same room as the armor, the sentence would have said
"...soon they came to a very long room full of pictures and there they found a suit of armor. The back of the room was hung with green, with a harp in the corner."
Once they talk about entering a room and then say next, it means they have gone from the first room to the second.
"Hung with green" means that any drapes or curtains were green.