piggle, i wish i could answer your will it get better as the baby gets older question. But who is to say. My DD is a bit of a nightmare with my dog, completely OTT and he just takes it - but he was a puppy when we got him. We had made the decision to rehome our rottie because he bit our eldest DD when she trod on his foot (she needed hospital treatment for a bite to her foot), i was never "sure" it would work out because he was a rescue dog with a dodgy background - but this decided me, it turned out he had bone cancer which was most likely why he bit DD1 as it was that leg she trod on and it must have been agony for the poor dog - he had never bitten before. No one can garuntee ANY dog, i mean, your lovely laid back chap could snap at her one day if she hurts him by accident. You just don/t know - even my JRT who has the patience of a saint might bite my DD, i dont think he will but no one can say 100%.
Thing is, you are not going to find a home straight away so see how things go - separate them of course, you don't have any choice and definately see about a crate - the way to get her over any insecurities is to put her food in there, leave the door open etc. Also, might be worth you investing in a DAP diffuser. This is a dog pheremone device that you plug in like an air freshener. It releases pheremones that are given of by a bitch when she has pups and is very soothing for dogs - very effective with anxiety issues in dogs. Not cheap and takes a couple of weeks to kick in but worth a shot. Is your dog highly strung generally? What food are you feeding them? Does it have a high protein content, anything above about 20% is high and could lead to nervous energy. Something like chappie is great as the protein content is low, or if you are feeding complete food i swear by jameswellbeloved but that again is very expensive.
I think the dog sees you as her underling and is protecting you from the baby - hence me saying that YOU need to be the boss. But you can do this kindly. Can you get baby to play with the dog, could she throw toys for him, while on your lap of course! Give her biscuits etc (but watch for snatching) to get a positive association, i just wonder if you have been tense (understandable) and it might worry the dog. You need her to view the baby as a non threatening addition to the household.
My gut feeling im sorry to say is that you should still rehome her, but you have to look at it from the dogs point of view - if it doesnt work out, she will actually be happier in a new home. Im sure she loves you, but dogs do adapt really well and so long as you find a kind and loving home for her then there is no reason why she wont be happy. SAdly, you will probably miss her more than she misses you iyswim.
Do let us know how you get on - its pants i know, but you are doing everything possible to make the situation right. Good luck
xx