We put one in and I love it. I sit down there several times a day. I agree that if you have to sacrifice needed storage, then don't do it, but it sounds like you have plenty of storage. Plan for as much natural light as you can...I was doing new construction on this part of the plan, so put a window right in front of the makeup area. I also wanted it close to a sink so I could rinse my hands while applying makeup. I use it primarily for makeup and grooming, as my hair care doesn't include dryers/irons/etc but does include several different goopy products...so I prefer to do that at the sink. Good luck! Old picture of our setup:

You certainly wouldn't want to expose your baby to the dust, especially dust from a 104 yo house (asbestos, lead, etc.). I would stay with your SIL while the work is being done and before moving back in, have the house professionally cleaned top to bottom and especially, have your HVAC ducts cleaned, if any. DH and I stuffed old towels down into ours when we did our last remodel and we still ended up with a ton of dust in them.

The galley doesn't require having the sink under the window, that is just a natural placement for it since most people don't love staring at a cabinet while they do dishes. In my current kitchen, my main prep area is centered on the window, which is very nice - that's another option. As for looking at the neighbor's house, you can always use a privacy film, blinds, or even stained or frosted glass if you want privacy (I have privacy film on mine since my neighbors' house is just 15' away and their kitchen window looks right into mine). Even with a film, the light and space from the window is nice to have around an area where you will spend a lot of time (i.e. prep area and/or sink). As Muriel mentioned, the galley could be reworked in any number of ways to give you the configuration that works best and doesn't impinge on your dining space. IMO, you don't have enough room in your kitchen to be wasting any of it on corners.

Follow Sabrina's suggestion or use something similar, stay away from the railings in your 2nd picture they install them in warehouses, and the 3d picture railing is the iron porch railing they used in old houses or in older bi-level homes everyone is ripping them out and replacing. I know iron railings cost is much less in comparison but you have a beautiful stairway don't mess it up with some cheap iron railing, especially when the stairway is being the focal point when you enter your home. Good luck