My kids are a bit younger, but this is basically what we're doing. Our house has two large bedrooms upstairs and one smaller "master" bedroom (with a walk-in closet and attached bathroom) downstairs. Our kids are 6, 4 and 19 months, and we're expecting in September. Right now, the two older kids (a boy and a girl) have one upstairs bedroom and my husband, 19-month-old and I have the other. For now, we're using the downstairs bedroom as a sort of "den," with our piano, bookshelves, and a sofa (we'd like to eventually get a pull-out sofa so that this room could double as a guest room when we have company). We're just moving into this house, so I'm going to see how this works--at our last house, we had a similar set-up, except that we had 4 bedrooms, all upstairs, and had the same sleeping arrangement, but one bedroom was a playroom and one was a computer room/office.
We've just begun the process of transitioning our littlest from our room to the other bedroom with her brother and sister, in hopes of having her fully transitioned by September when the baby comes.
As for giving your oldest some space, we've begun to think about this as well--my oldest is into legos and board games, both of which have a lot of small pieces that can get lost. At this particular time, he's still content to keep his games up high and his legos in a rubbermaid bin, but it means that he can't really keep anything put-together--I suspect by the time the not-yet-born baby is old enough to get into things, he might need a little more space. We've talked about eventually giving him a corner somewhere that is just his--whether that ends up being in their bedroom, or in the "den" bedroom, or wherever--I've even though of using the walk-in closet that's attached to the downstairs bedroom. But we'll cross that bridge when we come to it.