don’t understand how she goes full on ballistic from being fast asleep between our legs
She doesn't. You may think she's "fast asleep", but no healthy, fit, five year old dog is "fast asleep" most of the time. Dogs may have made comfortable homes with us, but they still operate by the evolutionary call of the wild. Being "fast asleep" is the fastest way to get dead! Dogs of that age are alert even when asleep, and have the capacity to react to sound and smell as much as they would awake. Which is why they can wake fully alert immediately when a human would be groggy and half asleep still.
Equally, younger and healthier dogs won't sleep through the night. They might be quiet if confined, but they won't be asleep all that time. Put you in a box and you won't be moving around either! And this is especially true of, and you should bear this is mind, young, healthy working dogs. And I can see you thinking she isn't a working dog. Well she may be short in stature, but poodles are historically very active working dogs of high intelligence. Her miniature status only takes an edge off her full size robust and energetic counterparts.
I would certainly urge you to ensure that her hearing is properly checked, and it is possible that she is becoming more reactive to sound because she can't identify sounds as well as she used to. But something that people often don't realise about dogs is that they can also see on spectrums that humans can't. So she could be reacting to light sources / movement of light that you can't see. Barking at nothing may be a sound source you can't hear, but there is research that suggests that dogs react strongly to various ultra violet light movements - which we can't see at all.
I'd be another vote for creating her a space in the bedroom and allowing her to sleep there. Dogs are pack animals and sleeping alone isn't natural for them. Some get used to it. Others don't. And if she has additional challenges such as hearing loss, she may feel the isolation more. She may be your pet, but she has a "job" - like all dogs she has a collective responsibility for ensuring that the pack is safe from potential threats. In another room she can take no cues from you. If she gets used to what you aren't bothered about, it may well settle her too.