The solution is to take several pictures, pick the best one, then cheat a little by using headshots from other photos for the people that, ahem, need to look a little better.
This works best if the camera is in the same spot for all the pictures (by using a tripod or by the photographer keeping his or her arms and legs locked) and if the photos are taken close to the same time so that the lighting is the same. It also helps if people stay exactly in the same position, which is unlikely to happen, but in many cases can be worked around.
In the above layout, I took several pictures of the kids. I picked the best one, which was great of the older kids, but not as good of the baby. In the good picture of the baby, I extracted her head (not as painful as it sounds) and pasted her new head over her head in the original picture. In this case, the lighting and camera angle was the same in both photos and she had moved very little.
While it is cheating, I really love having such a great picture of all three kids.
