we planned to have the two older boys there for Lucas' birth (they were 4 and 6) but I delivered at 35 weeks in the hosp, and I didn't want the kids there in case all was not well with the babe. We had prepared them for birth and especially my 4 year old was really excited about it, and they were super disapointed that they couldn't come.
This time they definately want to be there so we are crossing our fingers and toes for a full term home birth and everyone can stay home and be a part of it.
on another note I was at the birth of my second brother when I was four. My mom said I was excited and really participated they let me "catch " the baby with the dr's help. but really the only thing I remember is that my dad sharpened my pink pencil crayon on both ends so that I would stop asking him to do it so often
I think it is really unlikely kids would be traumatized by a birth, if it is approached as a normal part of life.