Corp in Washington state, doing business in California
From your description I understand that you essentially have two businesses that provide the same service. One is incorporated in WA state, and another is a sole proprietorship with a California license.
As you correctly mentioned in your questions, you have the following options:
1) Form a new Corporation in California.
2) Register your WA corporation in California as Foreign Entity.
3) Leave it as it is.
The disadvantages of (1) and (2) is in the fact that you would have extra costs associated with forming and maintaining a California entity, and in the fact that you would need to obtain a new license. (1) is better than (2) in the sense that those two businesses would be separated from each other as far as liability goes, however with (2) you would only file one tax return.
The disadvantage of (3) is in lack of limited liability. If something happens, related to this business, and you are sued, your assets are pretty much exposed.
I hope that gives you enough food for though to make the best decision for your situation.