Your older daughter... is really tweaking your youngest on purpose. Your younger daughter, is ONLY 3 yrs. old... and her emotional development and maturity is NOT fully developed yet.. but she is being "taught" by your eldest girl, negatively- she has "learned" that "competing" is the WAY to act to get things...thus, she can't cope when she sees you and Daddy snuggling... she sees it as a "competition" for attention instead of NORMAL, HEALTHY, expressions of love and affection that a FAMILY has.
The 3 year old is just a yo-yo being yanked around... and the 8.5 year old "competing" with a 3 year old is certainly not fair or congruent, and not nice... She has to know that and be called on it. She's old enough to be told, bluntly.
Your eldest girl, NEEDS to understand child development... for us, I have a 6 yr. old girl and a 2.75 year old boy... from the get-go, we explained to our girl, in a manner that is appropriate for her age... what a 2 year old is and is not capable of and how they "understand" things... now, when my son is being a typical 2 year old... my daughter will actually ASK us "Mommy, does he bang things because he's frustrated or he is just not able to do things like me because of his age...?" So then I explain that his motor-skills are different than hers and he is exploring and learning etc. BUT, that we can HELP him and teach him how to do things... and we make it "fun" TOGETHER. So that they learn how to be siblings AND learn "empathy" AND learn that there is always a common ground.
Emphasizing "teamwork" is also important, and what being a family, is, and what being a "sibling" is.
Teaching "attitude" is a foundation for kids... and later when the terrible teen phases comes up, too. Its never too early to start...
Its not a matter of "where" they sit at the table... or who gets to kiss Daddy first as he leaves... but they have turned it into a vicious cycle of "competing" and ousting the other, and its a "game" that is not real beneficial in the long run.
You gotta start from scratch... and the older girl has to be taught what is acceptable or NOT, and that there are repercussions to blatantly disregarding your "rules."
Do you have rules for them? They don't seem to have any regard for that and they are ruling the home.
There is a cause and an effect to things... they have to learn that... and I would be especially careful that each child is treated in regard to their ages. Certainly an 8.5 year old HAS TO KNOW BOUNDARIES... and that she can't treat the 3 year old like that. A younger sibling naturally "copies" the older sibling. So, you keep that in mind... or your younger daughter will continue to copy her older sister for better or for worse.
So... IS IT your 8 year old that should be allowed to do that?
Reward the behavior you want, and not the behavior you don't want. Sure, phases happens...but this is getting out of hand I think. My opinion.
Talk to them about your expectations for BEING A FAMILY and BEING A TEAM, and BEING A SIBLING. DEFINE that. Clearly. Then, per their age... tell them to work on it. Give them examples... give them praise when they try, do toy time-outs and toy-grounding or activity denial when they don't. And it will take repetition to get them "practiced" and then fluent in it.
This is just annoying, and then in the big picture of things.... all their competitive "habits" is just teaching them how "not" to be siblings and "not" understanding healthy love and affection among family.
There is a BIG difference between an 8 year old and a 3 year old, developmentally. They can't be treated the same nor be expected to understand things the same, especially for your youngest child. Be careful about what is going to IMPRINT upon your youngest child's behavior from the eldest girl. And, your eldest girl HAS TO BE ACCOUNTABLE in a way that is per her age. Call her on it, tell her directly that it is not nice to do that and you will NOT tolerate it.
BOTH girls seem to know that their behavior is tolerated even though it aggravates you/Hubby.
Some great books are: "Your 8 Year Old" and "Your 3 Year Old" from www.amazon.com
Teach them that things are NOT about who is "right"... but that everyone is different and RESPECT for that counts more... even my daughter's Preschool Teacher taught her class that and this was a class of 3-4 year olds. Kids LEARN what is taught to them, and then shown to them. My daughter's Elementary school, has a school wide "motto" of teaching the kids the "basics" such as being RESPECTFUL toward others. They all learn this in all grade levels. AND the Teachers remind the Parents of that too.
Its a hard nut to crack... but crack it now. LOL Or it will get more pronounced... my sister was like that... that's why I say all this. My sister KEPT being this way even into adult-hood. It made my daily life "hell" sometimes... her sense of "competing" just got more and more ... with me and against me. Not fun. Thankfully, she finally could admit it... and has curbed her attitude, FINALLY.
All the best,
Susan