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I do not understand why you are even asking questions about compatibility of car, wife, child?!
Your child is not an elephant and your new car is more than adequate for your child. Tens of millions of people right here in USA drive around with small cars and babies and they all seem to be doing quite fine. I do not see how you can raise issues about what you just bought.
For starters FRS is probably a little more safer and definitely more reliable than your old car. On top of it FRS is equipped with all kids of airbags and baby car seat restraint system.
Most people who own small cars pull passenger seat forward and drop in a child seat. Strap the seat using seatbelts and put baby in child seat cradle etc etc etc. Most babies sleep in the car anyways so traveling should not be an issue. If you are traveling "together" then your lady would be seating next to the baby in the back seat with front seat slid forward. Problem solved.
On a financial note you would be losing at least 40% if you were to try and sell right now. Considering that economy is iffy... many banks stopped issuing personal loans left and right which means that your chances of successfully selling to private party in this economy are rather slim and dealers will eat you for breakfast during trade in. Nowadays crowd capable of obtaining a loan for say $25,000 on a used car... would probably do so through a car dealership.
Keep the car, keep the dreams and let your woman deal with it. Nothing about your situation is dire so both of you can adapt.
Heck if I was able to fit 11 year old and 12 year old and 2 other adults into my 1994 celica coupe then you can fit a tiny baby in your vehicle.
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