| | Re: I honestly can't see the other side
To me, it sounds like you are doing the right things; researching all your options, not jumping right in to one of them without weighing the consequences.
I think your wife is feeling extra-emotional because she's pregnant, and the fact that she is facing losing a dear family member, her dog. Remember, she had this dog before she met you, so even though I think she clearly knows the dangers keeping the dog around your kids presents, she is still reluctant to let him go.
Let her calm down a bit and then when she is in a good frame of mind, sit down and talk through with her all the different scenarios. It doesn't sound like you want to get rid of the dog - you said you were willing to work with it to train it better so you could keep it. I think it's the hormones talking here, which is why she lashed out when she was so upset. Keep on talking to her, I think you guys can reach a decision together.