Wife:
1. Your wife should apply for
FLR(M).
2. She may apply for FLR(M) at the same time as you apply for settlement or soon after you have applied for settlement ... but definitely before her current leave expires.
In either case, make sure that it is mentioned in a covering letter that you are applying / have applied for settlement (and provide necessary personal details - name, dob, nationality, passport no., settlement application reference no. (if she applies after you have received the same) etc.) to help UKBA tag your wife's (and child's) FLR application to your settlement application.
3. Assuming she entered UK in 2008 as a dependant of Tier 1 (General) migrant, she may apply for settlement using
SET(M) as soon as she is granted FLR(M) leave (
287(a)(i)(d)).
Child:
Unless you intend to travel with the UK-born-child soon after being granted settlement, there is no need for the child to be included in the mother's FLR(M) application. After you are granted settlement, the UK-born-child will be entitled to be
registered as a British citizen under section 1(3) of the nationality act.