I don't think your snuggling and rocking him to sleep was a mistake and I don't know that it's causing problems now. I nursed both my babies to sleep at both night-time and nap-time. My older son self-weaned in one day while we were on a short trip when he was 13 m/o, and I remember almost panicking when we got home, wondering how on earth I'd get him to go to sleep without nursing, because I'd always nursed him or he'd fallen asleep while riding in the car. I figured I'd just switch out nursing for cuddling/rocking, but he refused, so I shrugged my shoulders and said, "All right, kiddo, I guess you'll just go to your crib without anything," and I expected to hear a screaming fit, but he just calmly stayed in bed and went to sleep. My younger son, even when he was less than a year old, would sometimes nurse until he was done but not asleep, and then push me away, so I would put him in his crib and he'd fall asleep w/o a fuss.
I would bet that his waking up multiple times has nothing to do with your snuggle routine, but is probably something else - his back teeth coming in or something. Making changes to his bedtime routine is a logical thing to do, esp. with #2 coming along, when you won't be able to do the full snuggle/rocking thing so easily -- but make sure you keep snuggling and rocking him sometimes throughout the day, so that he doesn't feel replaced by the baby. The baby will be a huge adjustment for him, and your older son really is a baby in a lot of ways still. [My two are 19 mo apart, and there were times when my baby-baby would be needing my attention, while my toddler-baby would also be wanting/needing my attention, and both were crying, and I was all by myself, and I would just sit in the floor and cry with them, overwhelmed. Then a few minutes later, it would pass and everything would be okay. But a 16-m/o is still a baby in a lot of ways, so don't worry if you have to baby him sometimes.]
Your current routine, gradually changing to a new routine sounds reasonable to me. I'm terribly against "cry it out" for babies and particularly newborns -- think about it, your baby inside you has been cuddled, snuggled, and rocked 100% of his life, with his needs perfectly taken care of 100% of the time, so to suddenly go from that safe, warm, loving environment to being left alone in the crib screaming is quite a change, and I think not a good one. Anyway, no "cry it out" for babies, but for older children, I think it is okay because they have a much longer experience with your love, and are able to think and reason beyond just this present moment, and understand that "mommy still exists even if I can't see her," and are able to control their behavior more. You seem to have picked a very gentle way to transition your older baby from lots of rocking before bed to little or none, in preparation for your new baby.