[nikkianni]

I don't know about advice, but I can tell you we're in the same boat. Our house has two bedrooms upstairs and one down. Right now we're in the big upstairs room and DD is in the small one. We plan on starting adoption #2 this time next year so someone is going to have to move. We're not happy with any arrangement we come up with.
If we're downstairs, DD and the new baby will be upstairs alone. If we're upstairs with the new baby, DD will be downstairs alone or vice versa. We may stay upstairs with DD in her room and a crib/bassinet in ours until the new baby gets a little older, but we're still going to end up with the same issue.
In our case we're trying to sell our house and buy my grandmother's beautiful five bedroom down the road. But we can't buy until we sell and with the housing market the way it is....well, who knows?
I think you might want to consult with the folks on the foster board about your concerns with being approved. My gut reaction is that it wouldn't stop the approval process. But they might be able to give you a better idea.