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I LOVE this name! Partly because i think it has a really nice sound to it and partially because of the main character in a favourite book of mine that i read some time ago (now an animated film!) I'm wary of using it though because of associations with the book. But it is an amazing name!
Caroline is a nice alternative for if you dont want your daughter to be constantly compared to the character. I do prefer Coraline but Caroline is nice too.

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As for kids with the same letter at beginning of names, not a big deal i don't think, as long as they're not too similar like Adam and Addie or something.