Megan with all type of diabetes there are risks to the baby. The risks are not so much these days with better monitoring techniques etc but a lot of obstetricians are stuck in the conservative better out than in policy. Rare risks include placental degradation without warning as with diabetes everything develops earlier and therefore gets to the point of degrading earlier....it used to be a significant risk but now with CTG, regular ultrasounds it is something that can be better managed. Also there is a risk of macrosomia if th diabetes is uncontrolled.....macrosomia doesnt just mean a big baby, it means a disproportionally big baby....one with a much larger stomach than head. This means you birth the head part all hunky dorey but then baby gets stuck.....big issues can occur. Again this was a real risk in the past but not so much these days if you are well monitored. And then again the opposite can occur where you get growth retardation due to excessive sugar levels impeding the circulation of important growth nutrients through the placenta...this is more an issue with long standing diabetics whose general circualtion can be impaired not so much GD'ers.
So you can see why some OBs take a conservative approach especially around the 38 week mark.......you are lucky to have found an Ob who is more up with the play on modern monitoring techniques and focussed on the reality of these small risks rather than the hype that surrounds them.

You hear stories all the time (and i have seen some posted here in the news sections) about women who have birthed like 15lb babies and it says in the article that the woman had GD. This invokes fear in a lot of people espesh those who are pregnant themselves. the reality is that those women would have had to have had uncontrolled, severe GD and been uncompliant to treatment plans in order to grow such a big baby with such health issues. People like the responsible ones I see on these forums are doing the right thing by minimising the risks and monitoring things etc and they have all gone on to have healthy happy babies whether induced early or gone to term.
If your doctor wants to induce and you are not happy with that then i would ask a lot of questions about the why they want that....push for regular monitoring etc if you think it is just the GD that is influencing their decision.....but if you are happy to be induced then thats okay too....at least all the testing and injecting will be over!!!
I hope this makes sense...was just trying to answer megans questions and it has turned into a bit of a ramble!