First of all congratulations on your new son! Very exciting... I have 3 and we just had our 3rd on Aug 13th.
Next, STOP SMOKING in your car or better yet quit all together, esp now that you will be driving around with your son in your car! Now that I got that out of the way...
I drove the E350 (not the blue-tec) and I didn't care for it - it as a bit of a pig and tended to squat more than I like under acceleration. If you are considering a diesel you should also consider the 335d (diesel). Some dealers still have them on the lots so your dealer might be able to source one for you and can probably get a pretty good deal on a new one. It's fast, has LOTS of torque and is very fuel efficient. Alternatively the e90 335 will fit the bill or as mentioned above the 535.
I can fit my 2 young kids and rear facing baby seat in the back of my 335d without to much of an issue. If we only had a baby seat to deal with it would def be doable as the daily family hauler.