On a baby it will look bulgy. Also with kid swimsuits, for me at least, they seem to stretch out in the water, so if they're on the smaller side it's usually a good thing.
No digging in the 10 minutes she had it on. No red marks after either. As long as you guys don't look at it and think, "oh that poor uncomfortable baby," I'll probably go with it. I have 2 more that are slightly too big right now so if she outgrows this, it won't be the end of the world.
She is so cute! I always buy bathing suits at least one size up, if not two sizes, because I find most to be sized really small. So when DD was your DD's age, I think I had her in a 2T. She's very tall, though, so that factored into the sizing as well.