Karen S. Schneider
April 28, 2008 12:00 PM

Black cardigan. White ruffled shirt. Very tight denim skirt over a perfectly flat belly. Was Ashlee Simpson trying to send a message when she showed up for a taping of MTV’s TRL in New York on April 15? If so, her body language was as inconclusive as her other responses to widespread speculation that she and fiancé Pete Wentz are expecting. The day after Wentz, 28, dismissed the rumors as a “witch hunt,” Simpson, 23, quickly sidestepped the issue in an interview with MTV News, saying, “When people deny [pregnancy reports] it’s probably because it’s something they want to keep personal.”

Well, mum’s definitely the word. A source close to the Simpson family confirms to PEOPLE that the singer and the Fall Out Boy bassist, who announced their engagement on April 9, are indeed having a baby and—first things first—are planning to wed at a friend’s house in La Jolla, Calif., in May. A rep for Simpson and Wentz neither confirmed nor denied the pregnancy, merely stating that “there is nothing to add” beyond the engagement news.

One life change at a time, anyway. “My sister is overflowing with joy,” Jessica Simpson, 27, said of the engagement. Ashlee—who’s also celebrating the release of her new album Bittersweet World—isn’t the only one beaming. In Wentz’s suburban Chicago hometown of Wilmette, Ill., his mother, Dale, 57, a high school administrator, is “thrilled.” She says Ashlee “is perfect for him. They’re good for each other.”

They’ve been inseparable ever since they were first spotted kissing at a New York night club in fall 2006. They had met earlier, but were in other relationships at the time. Even so, “the first day that we met we were attracted to each other,” Simpson recently told PEOPLE. They became friends, and Wentz quickly found, he says, “I was into everything about her.” The feeling was mutual. “He’s a cutie and has an awesome personality and kind of brings out the best of me,” says Simpson. As Wentz put his feelings to PEOPLE, “It’s crazy to be able to kiss your best friend.”

Pals had anticipated a proposal since Wentz gave Simpson a diamond eternity band for her birthday in October. “I remember we were all like, ‘Oh my God!'” says CaCee Cobb, a longtime pal of both Simpson sisters. “She said it was just a promise ring. I thought that they would have gotten engaged a long time ago.” But there was something Wentz had to do before he could propose—maybe because he was raised with what one source calls old-school “Midwest values.” He asked her father for permission—and got it. As Joe Simpson, 50, says, “I told him that I would be honored to have him as part of my family.”

Even though Simpson and Wentz had discussed marriage, when he popped the question, “she was super-surprised,” says a friend. Simpson was impressed by her new bling too. She told MTV “he did a great job at picking out the ring.” (Though it had to be resized.) Adds the friend: “She cried. She is so happy.”

And perhaps ready to leave more than the single life behind. In Chicago in February for a performance at the Underground, the Los Angeles girl, with Wentz at her side, clearly enjoyed the Windy City’s pace. “They just hang out with Pete’s old friends,” says a source. As Simpson told PEOPLE at the time, “I definitely want to live here some day.”

Maybe even to raise children there. “They’ll be great parents,” says a friend of the couple. Agrees a Wentz pal: “Pete would have a blast with his kids. He’s intelligent and sensitive—and very protective of those he loves.”

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