Change name of every family member by deed poll. Either all have your surname or another surname picked from either of your family histories.
When I was born, my mum had taken my dad's name and all kids had this surname. It was awful, siblings bullied terribly with it, just totally embarassing every time it was said. We all had name changed by deed poll to father's mother's maiden name (as it was plain).
Please dont give them an awful surname. Its just so unfair. You can certainly tell the nurserys that. Even if your DH has grudgingly agreed on this grab it with both hands. After all, do you want your dd to be begging to get married at 16 to lose the name! Is it a really bad one like Lilycrap, or Arce (as I have known one!) or Booby (again, wonder why they perpetuated that one!0...
I have known a Winterbottom, Arse and Boocock. Thank god not in my family or hubby's. I would use your surname and tell all relevant authorities! Save your children (and yourself) the embarrasment - life can be hard enough!
I had an awful surname as well but although I was teased about it, I did learn to stand up for myself, and to be honest, children will always find something to pick on, and eventually I learned to just reply "so, you're making fun of my surname, something I was born with and have no control over? Wow, how original" and that shut them up.
But when I got married and took on my husband's lovely bland normal, one of the most popular surnames in the UK, I could not have been more thrilled.
I had a bog-standard Scottish surname and changed it when I got married to dh's slightly rude sounding German surname (his Dad is German, dh doesn't even speak a word of it).
I've hardly ever had much of a comment on it - though some of the mis-spellings we get are utterly hilarious. And I taught for 5 years in a secondary school and just was upfront about it 'yes, I know it's stupid, laugh now and get over yourselves' and never had much bother.
Dh says he went through an all-boys grammar school with it and at least you knew what teasing you were going to get - he was never teased about his hair or nose or zits or whatever (clearly because he is utterly gorgeous and there is nothing to tease about )
We like it - its unusual, (we are the only family in Scotland with the name - only others in the UK are FIL, BIL, BIL and his family) and even in Germany it is unusual - there are only about 30 worldwide!! So we like it for that reason.
Kids have never had any trouble with it - thats just the name they have. Maybe cos its more breast than bum related, and of course in primary school bums are much funnier!
A name is a name - it might have a long history but who cares - do you want your kids to be known as DS Sowerbutts (a real name). I knew of a Dr Flowerdew which i thought was a lovely name, but Sowerbutts has to be the worst in name i've heard in the UK. No reason to give a child a dreadful first name, so why lumber them with a surname that you really don't like.