Sorry, OP. This sounds hard. You sound like you are at the end of your tether and could do with a bit of child free time/opportunity to relax. Is this an option at all?
The whole situation seems to have descended into tempers being lost. I don't think trapping a child in their room will help although I will admit to locking myself in the loo to breathe for a moment when DD went through a particularly tricky stage.
Going forward, you sound like you could do with a plan for special things that shouldn't be touched by anyone so DD1 can keep stuff safe. I think the only way you will encourage DD2 out of this very trying behaviour is for you to change your approach. Could you aim to be really calm and just repeat your expectation and try to redirect DD2 to something else?
My experience of time out type punishments is that unless the child meekly slinks off there, they become more of a problem than a solution. You then have to enforce that, everyone is dysregulated and nobody is any better prepared for the next time.
What you have now is 3 people losing their cool and if you could reduce it to just two, that would at least be better for you. Can you try to spend a little bit of time with each child individually? Grabbing something from DD1 gets your attention immediately and DD2 knows this. That's why it doesn't matter what other toys there are. She wants you. DD1 also knows this and if she shows DD2 the party bag, she is the good girl again. It sounds like you're in a loop of this happening with all 3 of you playing your parts.
Give her as much attention as you can. I know it isn't always possible as life competes with this aim but if you could just get in there first you might find DD2 to be rather lovely and this could set you up for better interactions. Ask her to help with things that need doing. She won't be any help but you can tell her she is. It won't get things done more quickly but it will be more pleasant. This is a very difficult phase but it will pass. Try to find multiple opportunities to tell both kids how great they are. If you could model calm you might get more of that happening. Big reactions beget big reactions in others. Kids do what you do not what you say, sadly. Be very obviously sympathetic to DD1 when her toys are broken and encourage DD2 to join in. Make it possible for both to win even after behaviour you don't want.
Not all kids are the same so different strategies can be required but kindness is learned from you. You might need to model it more for DD2 than other kids. I hope your conversation with the HV is productive and you feel listened to. I think some of what pp have found defensive and dismissive in your posts is that you have lost hope of things improving, but they definitely can. You just need some support to regroup and reset. Some other adults to allow you to divide and conquer would help. Are there grandparents etc who might take DD1 for a few hours so you can spend some time with DD2 doing what she wants without having to consider DD1?