I had my children present when our last baby was born. I had a homebirth, so they were all on my bed with me. They coped beautifully. I did however have them out the room for most of the labour, and when I had the urge to push, they were called into the room.
I did it this way, since I didn't think I would be able to concentrate while they were talking.
My midwives knew what I had wanted, so they even clamped my sons umbilical cord higher than usual, so that they all had a chance at 'cutting the cord'. My oldest 'seperated' us and the others trimmed it up.
We talked ALOT about birth during my pregnancy. We also borrowed a book from the library that my midwife told me about,
"Hello Baby, by Lizzy Rockwell" We read that alot. It is written from a childs point of view, about what to expect when Mummy is having a new baby.
There is nothing more natural in the world, than watching the birth of your sibling. Very very special thing for them to share.
My son will be 1yr old next week, and my kids still talk about his birth and can't wait until we have another baby so that they can all be present again.
Goodluck & keep us posted.