Hi Linzi,
Sorry to hear that you are having such a hard time. Unfortunately, I don't have much advice for you, but I can certainly sympathize. I have 24 month old and 4 month old girls and we are in exactly the same predicament. My baby started off fine, and I always swore that I would never be one of those people who held their baby all the time, especially at night. But at 4 weeks old, I found that she would scream and cry unless she was held, day or night. I tried everything, but eventually had to resort to holding her...it was the only way that she would calm down. It eventually escalated, and holding wasn't enough to calm her- I would have to bounce around doing a ridiculous dance and ssshhh in her ear. She wouldn't sleep anywhere either except on my chest. It turned out that she was later diagnosed with severe reflux, and that only made it worse because I felt that if she cried I needed to tend to her right away as she was in pain. My dd is now 4 months old and all I can say is that the snugli has become my best friend. She still wants to be toted around (and I can't stand it), she doesn't like to sit on her own even if I am there. I'm trying to slowly cut the ties as this has been going on for some time now. It sure can be impossible, especially when you have another toddler that wants your attention.
Good luck to you. If I come up with any ideas that work, I'll keep you posted.
Lori