@Blythe1973 - one of the things that really helped me, when I had Cognitive Behavioural Therapy, for depression and anxiety, was learning to do visualisation.
I was told to picture the depression/anxiety as a big, dark cloud, and then to imagine the cloud getting lighter at the edges, and that lighter cloud spreading until all of the cloud had disappeared. Another one was to feel the weight of it in my brain, and then to picture that weight getting less and less until it vanished.
Might it help if she pictured the scary puppets getting smaller and smaller until she could step on them and squish them. Or picture herself shoving them into a box and locking it? Basically something that shows her that she can take control of the pictures in her head, and make them do what she wants - if she has watched the Harry Potter films, it’s like when the Boggart is transformed from students’ worst fears to something they can laugh at, and this removes the power that the fear has.
I’d say this would be something to talk about during the day, and you could think up mental games to play, to practise changing the images in her head in the daylight, when there is no pressure.
Apologies if this isn’t making sense - my brain is fried today, and I’m not sure I’m expressing myself coherently!