Linda and Carolyn, I am getting excited to see what the two of you come up with. It's so interesting to see what a single idea can turn into when given to different people. I am confidently expecting to see two very different and very lovely creations!
Carolyn, I think you have it pretty well figured out. (Look, there's a nice cliff!
I would probably put on the teadye dress and see where I wanted the princess seam to hit, and then place a pin at the shoulder and bust. I would also take some squares of fabric and try pinning them on the dress to see where the most flattering pocket position will be, and what size is best. I think that is probably the key step in all of this, as you don't want those pockets in the wrong spot, or the wrong size.
I would then take off the dress, lay the pattern over it and mark the chosen spots onto it. I would draw the lines right on the pattern, and then trace off that. That will save you a step, and the lines won't hurt the pattern. I was going to say that you could incorporate your bust dart into the princess line, but I don't see that your pattern has a dart?
You're right on the pockets, although there are 2 ways to do this. One is as you said, just add a pocket extension to the side bodice piece, and then add a front pocket piece behind the horizontal "tab" so you don't get showthrough. The other way is to cut the side bodice and side skirt piece as one, and use the part behind the "tab" as the pocket extension. Then you would only have to add the front pocket piece/facing. You'd save fabric doing it the first way probably, but the second way might be quicker.
It might be quite slimming to use contrast piping on the princess lines and down the CF edge of the dress, too. Or, if you're going to do silk ribbon embroidery, why not whip the seams on the outside with the silk ribbon? You could easily do the collar and sleeve edges too, or whatever. I think that would be my choice of embellishment.
I'm getting all excited about your dresses, girls!