Well, you titled it correctly: Priorities. Of course, that could also be called Opinions because we're not all in agreement on what items are most important in our lives.
Clearly the expenses that come with the child are #1. You are going to have medical bills and day care bills; they're unavoidable. Well, you might have options with the day care costs, but that doesn't seem to be a topic here.
After the child's expenses, I see that you want a number of expensive items:
SUV
Really nice house
Second child
Retirement money
To be out of debt
Emergency fund
You're right when you say you have too many priorities, and some of these are wants rather than needs.
Here's how I'd address the question: 5, 10, 20 years down the road, which ones will still matter?
The SUV will have cost you money in upkeep, and it'll be full of Cheerio crumbs and milk stains. It's a depreciating asset. 5, 10, 20 years down the road, the SUV will not matter at all. I'd rank it last-last-last on the list.
The nice house. I struggle to say put this one low on the list because I personally am in the starting process of building a custom house, and although it'll be small, it'll have high-end features. The difference between you and me, of course, is that my children are all but out the door, and I have an ample retirement fund already saved, plus I'll have a pension in a few more years -- I'm farther along in life than you are, and I can afford the house. I'd rank the house low on the list. A really nice house is something towards which you work, not something you splurge upon while you're still new to parenthood and before you have a substantial amount for retirement. Also, if you're going to have to borrow, you should consider moderate houses; to buy a really, really nice house -- and borrow to do it -- doesn't make sense on a frugal level . . . unless the house is a bigger priority than retiring. Finally, if $500,000 is a fixer-upper where you live, I'd ask whether this is the best place for you to remain. You could probably save a great deal more elsewhere. 5, 10, 20 years down the road, having a house will matter, but a moderate house will serve you just as well as a fancy, expensive house -- in fact, it'll serve you better because a moderate house payment will leave you money for other items in your life.
Second child. This is a personal thing. I know that when I had my first, I definitely felt that I was not yet done. If I had not had my second, I would feel incomplete on a level that nothing else could fulfill. I'd rank the children as the #1 priority. However, I feel compelled to mention that, although having children is not cheap, you can find many, many ways to cut their expenses without impacting the things that really matter in life. 5, 10, 20 years down the road, the children will matter more than anything else upon which you spend.
Retirement money. I'd rank this #2, second only to the family itself. You're in the magical years when money saved will be subject to the magic of compound interest. You've seen the charts about how saving a little bit early = big bucks down the road. You can never get this time back. Put off the fancy house and the SUV in favor of real security for your future. People want to think that they'll have plenty of time later to save -- you know, after the kids are out of day care, etc., etc., etc., but you'll never, ever find a convenient time to put away more money. So choose now. 5, 10, 20 years down the road, your life will be significantly different based upon whether you save now or put it off a while.
To be out of debt. I'd rank this #3. Sounds like you've done a great job paying down your student loans in the last year -- keep this up. The sooner you stop throwing money away to interest, the better off you'll be. How to balance this against retirement? I'd say split your "this is what I can save" money between the two for now, and when the debt is gone, shift the whole amount towards retirement. Again, 5, 10, 20 years down the road, your life will be very different based upon whether you're still carrying debt.
Emergency fund. Again, this is a very important item in your family's budget. You need to know that in case of an emergency, you'll have money you can have this very instant. However, I'd rank getting out of debt and retirement saving as more important. You have some emergency funding now, right? And you both work. It's unlikely you'd spend all your emergency fund AND both lose your jobs at the same time. I don't mean to say that an emergency fund isn't important; rather, I'm saying that these other items are more important.