When using a front mounted child seat, will it be better to size up or size down on a Mountain bike (I'm right on the boundary between sizes)?
Some things to consider (I'm certainly not an expert!):

Your toddler's weight, sitting high in the seat, will tend to make the bike top-heavy. Your legs are what will keep the bike from tipping over sideways, so a lower or slanted top tube (lower standover height) will make it easier to plant one or both feet on the ground.
Different bike models will have different seat-tube to steerer distances, which will affect your knee/Thule clearance as you mentioned. It might be worth looking at the men's models as well as women's models to find something you're happy with.
There are some reviews that mention the Thule limiting steerer movement to the sides on some bikes; maybe that's actually a good thing?
You or the bike shop can easily modify the bike, for example with a shorter/longer or differently angled handlebar, to suit your needs better.