There's nothing wrong with co-sleeping, if it works for you all. But as a first step you need to make sure you've got the safety angle fully covered off.
I don't think your little one sleeping between two adults sounds very safe. Presumably between pillows and duvet too.
The way my sister has done it is they sleep on a mattress on the floor, she has a single duvet around her and her little boy has his own covers. Her husband is in a different bed. My sister meant this to be temporary but it ended up not being, because this way they all get enough sleep. However she's now a bit stuck by not having an exit strategy, and like I said her little boy will be 3 in Jan and she'll be due twins about then.
I have lost track of how your little one is sleeping now, I think sleeping through more or less but with a late bedtime, and in bed with you from the sounds of it, as well as you share a room anyway? And before that you were rocking and patting for all wake ups, and had long wake ups in the night?
I think you need to decide what you want to aim for. If you want her sleeping alone in her cot and self settling, then you need to set out some steps towards that and stick to them. I would say first step is self settling alone at bedtime. What does bedtime look like at the mo, how does she get to sleep? And where?
I think you were considering controlled crying. This looks like putting your little one in their cot and leaving the room so they fall asleep alone, popping in to reassure then at set intervals.
In all honestly I think going from co sleeping to controlled crying, your little one is likely to be extremely stressed as it's extremely different to what they've had, they won't be happy, and they're old enough to kick up a hell a stink. I think you'd be setting yourselves up to fail.