we had our 3.5 year old at our last birth, which was a homebirth. my mom was there with her the whole time. she spent my labor in the living room and her playroom and then was in the room for the birth, just watching. she was amazed, and very quite and in the background the whole time. it was lovely. we talked to her quite a bit, took her to a sibling class, and read an excellent children's book about a homebirth to her (can't remember the name, i'll try to find it) she showed no concern, and having my mom there with her, who she's really comfortable with, was what made it work. i'm sure part of it is personality too, and how comfortable you and your dp are with having your other child there. this time around she'll be here, and 5 years old. our dc2 will also be here-he'll only be 21 months, but once again, my mom will be with him. i doubt he'll be there for the actual birth though, but in the house.
mountain loving, nursing, homebirthing mama to beany (12.05), zoomy (4.09), and one more in january.