We’re not naming our daughter after you.
If you’re a subtext fan (like the writers), this isn’t just about making John Watson laugh as a last memory, or as simple as a last minute substitution for “I love you”.
Sherlock overheard Irene and John’s conversation, the one he never mentioned, when Irene challenged John’s “We’re not a couple” with “Yes you are” and he replied “Who knows about Sherlock, but if anyone still cares I’m not actually gay.”
Sherlock has deduced that he has romantic and possibly sexual feelings for John in S3. He has heard John say that he is not gay. This is Sherlock’s regret — his “If I had been a woman” or rather his, “If only you could have looked past the fact that I’m not.”
"I think it could have worked" he murmurs, and he’s not really talking about baby names.