My dd was 4 when her sister was born, and she watched with pride - of course, in & out. Our mw has an excellent sibling birth class. We had a friend over, whose job was to just keep Annie entertained. Annie loves that she was there, and when we discussed whether or not we should have another baby, she said she thought it was important for her sister to "see" a baby be born (obviously, we can't use that logic infinitely, and this will be the last pregnancy). Annie was 7 when she said that.
Now, they will be 9 & almost 5 for the upcoming baby. We haven't figured out who will be the extra caregiver, but there is still time. The extra person is critical, in my opinion, so that all needs can be met without taking away from mom & dad. The friend who was here the first time might be willing this time, too - oh, and she was MY friend, and Annie really didn't know her well. Annie is very very attached to us, so there was always the chance that we made the wrong decision to have a virtual "stranger" present, but we simply didn't give her an opportunity to choose to be unhappy about the situation.
We're a very open family, and I don't have any issues about being nekked around the kids (but it freaks me out to be nekked among strangers/nurses/doctors). And my friend wasn't all that close, either, but she got the glory of intimate birth, too! I don't know if that matters to you, but it seems to matter to a lot of moms. I think that most women lose all inhibition in childbirth

--janis