Your husband's daughter is either part of your family or she is not. TBH I think it's bad enough already that the second bedroom is not fitted out as her room. She stays in the spare room, the guest room, a room where the dressing table is more important to you than she is; a room which is already telling her that she is spare, a guest.
And then, you say "I would love a nursery I have always envisioned a lovely space with a rocking chair and a cot with all their little bits."
Yeah, well, maybe you shouldn't have married a man who already had children then. A man who, frankly, should have insisted on his daughter being treated as a child of the family and not just an afterthought to be stuffed into the spare/guest room. This girl EXISTS, however inconvenient you find that fact. And this child should be treated lovingly. "But this would mean DSD has no room at ours and would need to sleep on a blowup bed or on the sofa" - that is not loving behaviour towards her
.
I spent some time recently on a thread where women whose parents had split, or where their mother had died and the father remarried, talked of how it affected them. The most heartbreaking posts were from women whose childhood had been scarred by being made to feel unwanted by stepparents, and how that affected them even now as adults. More than one mentioned the lack of any space to call their own, sleeping on sofas, on Zbeds. Don't be that stepparent.
"I think a small single can be put in there with a cot. I've seen camper beds or something like that , they look nice and can be put away when she not here . That will work I take that on board. But it will be decorated to my taste as the room is already."
A normal single. Not a camper bed, however 'nice' you may think is is, it still sends the signal that she does not belong here. And you should be involving her in the decoration choice, because you want her to feel that this is her home too - don't you?