My daughter also wanted to be present at the birth of her sister and although I've been in two minds about it, I'd pretty much decided to let her be there for as long as she could handle it.
However, when I mentioned this at my last midwife clinic appointment, the midwife asked me to carefully reconsider our decision. She explained that a child's mother is the epitomy of strength and control in a child's eyes and to see that mother crying, in pain or out of control can leave emotional scars that won't easily heal. It can also affect that child's view of childbirth in general and create a fear association that will last for the rest of their lives. When I noted that my daughter would be able to leave the room whenever she (or I) felt uncomfortable, the midwife pointed out that by that stage, it might already be too late ... she may already have seen too much.
Having said this, all midwives seem to have different advice to offer on different topics, so perhaps a chat with your midwife might be in order ... but my midwife has put enough doubt in my head about the idea to decide not to go ahead with it.
Nicole - WA - Mummy to 2 Girls (16yrs & 9mths)