Stokey - Hi and welcome! I've been meaning to reply to your post from Monday evening, but have only just found 5 free minutes!
I'm in a similar place to you... DC2 is nearly 10 weeks old, and I never lost the baby weight from DC1 (who is now over 3!).
I'm breastfeeding as well, and am also on 1200 cals + 500 for feeding. I started MFP when DC2 was 1.5 weeks (I know, I know!) and over the last 8 weeks have lost 15.5lb. I am very very pleased :)
DC2 is gaining weight nicely, following the 50th centile and generally a happy contented baby. I don't think my 'diet' is having and adverse impact!
I'm now 7lb lighter than I was pre DC2, but still some way to go to pre DC1 weight and about 2 stone more to lose to get to my goal.
I hope this reassures you that 1700 cals a day will allow you to lose weight at a nice, but sensible rate. Sometimes 1700 cals feels like quite a lot - I can eat 3 healthy meals and a chocolate bar in the evening and still have calories left. I do try to get to at least 1600 per day, as I don't want to starve the baby!
The chocolate bar in the evening is what keeps me going. I keep telling myself that if I overindulge during the the day, then I won't get my evening 'treat'.
My other advice - keep busy (out of the house works best for me) during the day to avoid 'boredom snacking', and stick with the diet at this stage - it will be much harder when we lose the 'bonus' 500 bf cals.
Sorry for the ramble, rushing off to feed DC2.....