The only place I could imagine is in the kitchen with a gate but we don't have a laundry room or large bathroom. The only room we have that's not occupied is carpeted.
Our garage is a carport, so we can't put her and her (when they come) pups in there.
any ideas?

Potty training?!

I imagine that is your concern with carpeting? My dogs are inside except for when they go to the bathroom.

She is trained but what about the pups?

Well one good thing about mommas is that they train their pups if they are trained. you might need to get something like a large plastic mat or something and make sure the pups get to go out when they are old enough.

I found an article and I'm sure there are a lot of them online about newborn pups:
http://www.peteducation.com/article....9+1651&aid=916

Basically, the mother will 'take care of' their urine and poo for the first couple weeks. If you have an area that has easy access to the outside, that would be best because she will obviously need to go outside and when they are old enough, they will need to go as well.

Since both dh and I have never dealt with a pregnant dog before, dh is worried if she can get snippy or agressive with our kids if she's in the house? Mainly because he's heard that pregnant dogs can be "witchy," and will snap on get moody at a drop of a hat. Then there's the after the pups are born, will she become agressive towards us because she won't want anyone near her litter?
I've had pregnant cats who ended up being the sweetest things while pregnant and we no different after the kittens were born. Yes they were protective over their litter but it was only as being cautious that you weren't harming them but they were very protective against potential preditores, like other cats or whatever.

If you can get a whelping box you can put that in your spare, carpeted room and your carpet will stay safe.

well we figured out an area for her to sleep then birth her pups. Its my desk room. I have some worn out blankets that I'll spread in there for her.
The only thing dh is worried about is, what if she becomes agressive with the kids. We've only had her for 2 weeks and dont know her that well. What I do know is that she is sweet with the kids and us. She does get snippy with our other dog for whatever reason. He's come up to her looking normal and not trying to sniff her and she just gets in his face. The other day dh and my ds1 were in the backyard. ds1 was kneeing beside her, petting her then the Lab walked up behind ds1 and Annie's top lip started to quiver, I called her but she went again and got in his face. From that point on she didn't want him to get near dh or ds1, after a while he just went to retreat into his dog house.
Other then these small episodes they get along, if one sees a squirral they both go after it to chase is up a tree. They'll sit together and not have any worries.
dh just worries about our kids, that she will get aggressive with them. I told him that I would treat her the same way I would treat any other none pregnant dog or cat. To never trust them alone with our kids. I wouldn't want to take chances of them bugging her too much where she'll nip at them...she's never done it but I don't want it to happen. Especially after the pups come, I'm not gonna let them touch her pups unless I know she's okay with it.

Wow. I can't believe the things you've said about the shelter you're adopting from. That's insane! What I quoted above is what I thought was the standard! I'd be really upset, too. REALLY upset!