T.L.
If you're concerned about moving the 3 year old to the room on a different level - I'll share my experience. We have a 3 bedroom split. The master is on the upper level and the other two bedrooms are on the lower level. Our 3 year old has been on the lower level since she was about 6 months old and it has worked really well. We still keep a baby monitor in the room, because I can't hear her without it. Also, because she has to walk past the front door to get to us and I worry about her wandering outside and getting locked out in the winter, we bought a $10 door alarm at Radio Shack that goes off if the door is opened.
There are a few things to keep in mind: make sure your lower level is kid proofed. My daughter has gotten up a few times at night and the monitor didn't pick it up so I didn't hear her. Have a fire rescue plan in case you can't get to her on the lower level. Our plan is a simple landscaping rock outside her window that we would use to break the window if necessary.
I would like to have all of my kids on the same level but our house just doesn't allow for it. We have never had any problems with having her downstairs and a few simple precautions have made it work very well. Maybe try putting your older child in her own room downstairs and just see how it goes.