A.R.
Hmmm... tough one.
Okay, I'm going to throw out some suggestions.
First, is your older nightweaned? I'm assuming she is. I nursed my older daughter till that age and she definitely was by that point... but correct me if I'm wrong.
Also, will another mattress fit in there? We have our setup like this:
queen + king side by side on the floor. 15 mo and I have the king and husband has the queen. If we need to allow my 8 yr old in for any reason, we still have room to do so.
Also, I was single mom w/the 8 yr old when she was younger and we co-slept like this: moved her to twin IN the room until she was comfortable.
Another thing that might work is to turn the mattresses sideways and sleep with your upper body on the twin, if that makes sense. That might let you fit baby against wall, you, older, husband in that order. Not sure though if that would be enough room for you all.
There is a co-sleep forum at MDC (mothering.com discussion forum) if you're interested.
Setup is really going to depend on whether you can fit or afford another mattress in there, I think. Otherwise, you could step up the nightweaning for the baby and put them both in a room together and see how that goes.
:( Wish I could be more help. Feel free to message me.
-M.