Ash would probably be very shocked and hurt. Pokemon are like his family, and for Misty to steal one would go against everything he stands for.
Ash could also be a bit more understanding if there was a good reason behind Misty's actions. But even so, he would still want the Pokemon back. He might try to talk to Misty calmly and find out what's really going on. He could also enlist the help of other friends or Pokemon to get the stolen Pokemon back while still trying to salvage his friendship with Misty.
He would likely be angry at first. Ash is known for his strong sense of justice when it comes to Pokemon. He might immediately confront Misty and demand that she return the Pokemon. But then he would also be confused as to why Misty, his friend, would do such a thing.
Misty would probably be shocked at first. After all, she and Ash have been friends for so long. But then she would be overjoyed. She might blush deeply and have tears of happiness in her eyes as she says yes.
Pikachu would be super excited. It has been with Ash for so long and would see Misty as part of the family. It might play more with Misty's water - type Pokémon. Misty's Starmie could be very protective of the new family unit and use its psychic powers to help around the house sometimes.
In the fanfiction, it might be that Misty has some sort of ulterior motive for stealing the Pokemon. Maybe she's being controlled by an evil force or she thinks it's the only way to protect the Pokemon from something worse. But still, Ash would not easily accept her actions and would likely fight to get the Pokemon back to its rightful place.
Ash might be heartbroken at first. He'd feel a deep sense of loneliness and confusion.
I think Ash would be angry as well as hurt. He's a passionate trainer and his friends mean a great deal to him. He might challenge May in a Pokémon battle, not to defeat her but to make her see how wrong her betrayal is. And during the battle, he would keep asking her to come back to their old friendship.
Ash would be extremely hurt. He's a very loyal person, and having someone he cares about like Lillie betray him would be a huge blow. He might initially go into denial, not believing that Lillie could do such a thing.
The friends would probably be a great support system. May and Max could bring gifts for the baby, like cute Pokémon toys. Dawn might offer to babysit so Ash and Misty could have some time for themselves. All of their friends would be there to celebrate the new addition to the family and would help out in different ways as the baby grows up.
Ash's Pokemon would likely have mixed reactions. Some like Bulbasaur, being the gentle and observant one, would be quick to accept Sabrina. It might even enjoy the new psychic powers that Sabrina could bring into their group. However, Squirtle might be a bit mischievous at first, trying to test Sabrina's patience. For Sabrina's Pokemon, Alakazam, being highly intelligent, would sense Ash's good intentions towards Sabrina and would support the relationship. Her other Pokemon would follow Alakazam's lead.
Pikachu would probably be very protective. It might zap anyone who tries to make fun of Ash. Misty would likely be shocked at first, but then she'd start taking care of him like an older sister, making sure he's clean and fed. Brock, being the nurturing type, would probably be the one to find practical solutions for taking care of baby - Ash, like finding proper diapers in the Pokemon world.
Pikachu might be very confused at first. When it sees 'Ash' (really May in Ash's body) acting differently, it could be hesitant to follow commands as usual. For May's Pokemon, they might be surprised to see 'May' (Ash in May's body) suddenly having a more battle - oriented attitude. For example, May's Beautifly might be confused when 'May' wants to train it for battles instead of focusing on its appearance for Contests.