We went through the same thing when our first child was about that age. Our dog had been our baby for 3 years, but when a 'real' baby came into the picture...well, it just wasn't the same. There was jealousy from the dog, less patience from us, and it just made me feel frustrated and guilty all the time. So I posted an ad on a local classified site online and explained the situation. I stated that I would be very particular about who our dog went to, but that I was giving our pure-bred Min Pin away for free to a loving home who would treat him like family. We found a Christian family with three kids who were so excited to have him. They even sent us email updates a couple of times after he went to live with them. I was very sad, and I even miss that darn animal today, 5 years later. But I never regreted the decision. It made for a much better environment for our family. And, as much as we loved that little dog, our human family had to come first.
I know it's a tough decision, but if you and your husband both feel this way, then now is the time. When the new baby is born, it will probably just get worse. And I agree with another poster who said that waiting any longer will just give your son time to understand that he is losing his dog. Right now, he would hardly notice. It's up to you guys, but don't feel bad. If you decide to find her a new home, it will be for her benefit and your family's. That's nothing to feel bad about!
Good luck!!
C.