Peggy definately had the baby. They showed the nurse at the end of last season asking her if she didn't want to hold him and then Peggy turning away. She could have given it up for adoption. They showed the sister pregnant(very) while Peggy was in the hospital this season for a reason. There would be no reason to show us her sister was pregnant. There may have been two children at the Moms but I am not sure. I don't think she said goodnight to the child just sort of accidently saw him in a crib when she was leaving one night. Sort of the same accusing eyes as the dog scene imo.
This show has a sort of hide, deny, throw away, your problems except for Betty sort of with her shrink. Don threw away his life got a new one, men throw away their marriages, relationships, the dog, a baby, deny the kids need discipline, deny a husband is cheating, what a decadently selfish era.
I am hating Don now. Loved Betty in her two piece suit though especially that she was wearing it around the house and cooking in it and stuff. Loved Sally with her accusing eyes in this one too.