Ok, I was able to easily add two kids to the family gold account. The one I'm having problems with is the one with an existing WLID. I enter her email address and password, but it gives an error.
"Can't sign in using your Windows Live ID. Please try again.
If the problem persists, visit http://account.live.com"
The WLID I am using to add her is a gmail email. So I tried to change her email to a hotmail email that I created for her. But it won't let me either. Very frustrating.