Yep, you can knit in one piece up to the underarm, then you'll need to split the back and fronts and knit them flat. Use a 3 needle BO to join the shoulder seams, and you can pick up sts around the armholes for the sleeves and knit them down. On a baby sweater you wouldn't need to leave off the seam sts, that would amount to less than an inch unless it's bulky yarn, so would be okay to leave them. The more room the better for baby and children's clothes.
sue- knitting heretic