I never did understand "Teddy" on a girl. Is it a nickname? Inspired by anyone in particular? Plus, I have a coworker named Ted and he's pure testosterone so I can't really picture it on a sweet baby girl.
Lily and Emily are sweet, classic names but are unfortunately pretty overused in a lot of places. If that doesn't matter to you, though, go for it!
I love Francesca. It's got great nn possibilities and it's precious with Grayson.
Or how about a compromise? Like Lily Avalon, Chloe Francesca(such an interesting mn), or Emily Charlotte?
Lily - One of my favorites.
Teddy - really very cute but not something you can grow up with easily - great nickname though!
Emily - Not a favorite of mine but pretty
Francesca - I do like this name - sounds elegant to me
Chloe - Beautiful, perfect, feminine
Charlotte - Pretty but the more I hear it, the less I am drawn to it for some reason
Avalon - Pretty but not sure about the "n" ending with Grayson
Maybe Temperance with a nn of Teddi?
My favourites are Francesca and Charlotte. I tend to like longer names that are often frilly and very feminine. It seems that you and your husband have a similar style- familiar, rather popular and girly names, but also some unisex/more masculine ones like Teddy and Avalon.