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I think a) it's awful and b) you need to stay out of it. She's clearly not bothered by giving her children incredibly similar names. Since you don't indicate she has asked for opinions, you're risking insulting her and damaging the friendship.
I prefer Eliza, especially as a nickname for Elizabeth. Elisa reminds me of names of my own generation, like Alyssa and Alicia, that are kind of bland and mom-ish to my ear (although most people disagreed in a recent thread about Alyssa).
I like Hazel Margaret best. Lily Bea is awfully cute though, I would rate that one second.
I like Ivy Linda as is! The honor element is strongest when using the exact same name; I think it would be very sweet and meaningful to use the full Linda.
Violet + Evelyn = Vivian?
You have similar taste, so you should get decent results using a tool like the Name MatchMaker on this site or nymbler.com.
Edith was my first thought too. Maybe Ruth, June, Ruby, Helen, or Harriet.
I love Gideon as a complement to your boys' names.
I would be pissed if my parents named me Emberlyn - and 10x more so if my sister had such a gorgeous name as Rosalie. Mariella is a much better choice.
I scrolled through Behind the Names's lists of Swedish and German names to come up with these. I'm not sure whether you want to emphasize or downplay the ethnic origins of Gustav with your middle name choice.
Are you in the US, as most of the posters here are? Whether you're a native Norwegian or an American with fourth-generation ties to Denmark may - or may not - influence the "feel" you want for the first-middle (and last) combo.
I agree with the others that Siddalee is odd and unappealing. Sidney is decidely masculine, which your husband has said he doesn't like. Kinley and Kinsley should be right out since there's a relative close in age to your coming baby with essentially the same name. That leaves Mila as your best option of what you've listed (and definitely my favorite, even without the issues the others have). Since it isn't quite right, how about Milena, Malia, or Melania? Two of those (especially Melania) happen to be rather politically charged at the moment though! What do you think about Millie? Besides Millicent and Mildred, it could be derived from Camille/a, Matilda, Amelia, or Emilia. I like the suggestion of Sarah "Sadie" as an S-d-ie alternative to Sidney and Siddalee - but I'm guessing the full formal version isn't what you're looking for!
I love Eloise!
Rosalie is beautiful! It's my favorite of your options, with Evelyn second (but that's pretty similar to Ava). I don't like Scarlett much at all.
I don't think the full Rosalie is a problem, but you have run through all the other Ros- options to rule them out? Rosalind, Rosamund, Rosa, Rose, Roseanne, Rosanna, Rosemary, Rosemarie, Rosalia.
I also prefer Isabella.
Meredith was originally a masculine name (or a surname turned masculine first name?) and is 70s/80s dated, which makes it kind of a weird match to your more modern sounding (though classic) and unambiguously gendered name choices for M and J. Theodora is a bit heavier than the other two, but altogether a decent fit. As a lover of long, clunky, somewhat esoteric names, Theodora definitely gets my vote!
Which nicknames is it that you like?
I don't think I see Dorothy or Theodosia suggested yet. Although itself traditionally a nickname, you could consider Theda as an alternative as well.
Other ideas - Phoebe, Amelia, Imogen.
Is it terribly confusing to have two little girls of the same age named Hermione running around at family gatherings?
Have you asked your nieces (Cora and Aria) what they think about potentially having a cousin who shares their name? I would think it might be time to introduce a new name into the mix.
If Sarah were the older daughter and Cl@re the baby, I could see Clara as a likely mix-up. But Cl@re's name is well-established at this point! I don't think she needs to worry about being called the wrong name herself.
A couple other ideas (without repeating initials), if you're interested: Laura, Rachel, Emily.
Gosh, what a shocking coincidence! And another McArthur family, to boot! Maybe they're distant cousins using names off the mutual family tree. :D
Sarah is a great fit and a classy choice. If you went with something that did win points for originality, it would stand out like a sore thumb. :) It's a pretty name and works well with your established style.
Given the options in your post, I think you should stick with Ashton Gray and Edith Laurel... or how about Asher Marais or Edith Ivy?
I could see Boseman (as in actor Chadwick Boseman) being used as a male first name - although it may fit better with white American naming trends than black. Maybe for biracial boys!