First of all I don't understand people criticising the EOW thing. This is by and large the standard contact that is granted to a non resident parent. Not everyone has 9-5 jobs that allow an evening in the week too, not everyone lives within 30 minutes of everyone else. Also it is her stepchild so her partner's issue not hers.
Secondly, it seems reasonable that a child that is only there 52 nights does have the smaller room. Babies come with changing tables and all sorts of paraphernalia.
The one thing that stands out to me in the OP was "we discussed it" but he gave dirty looks. This seems like you assumed this is what would happen and are now shocked that your partner wasn't on the same page.
I think there are a few options
(1) moving now - while you are still working and can possibly have more borrowing power.
(2) Stay. Baby stays in with you and then box room for a few years.
(3) Stay, but before there is even mention of a baby to SDD the move to the new room happens with the offer of decorating, perhaps a wallmounted TV, making it her special place beforehand so she doesn't feel displaced.
(3) Stay for now. Baby in small room but move when baby gets to school to a house with more equal room sizes.
Again I have seen families with step kids (inc my own) where once they get to 16 and have Saturday jobs, parties etc if you live any distance apart the visit are more ad hoc to fit in with their social lives because that is how the step child wants it to be.
Personally I am on the OP's side but it is just all about how it is handled.