This must be so difficult for all of you.
Does the nursery do a mid morning snack? I'm just wondering if she'd be able to manage through to snack time on the small amount she manages to feed herself, I know you don't want to pack her off to nursery hungry and then for her to have to wait until lunch time.
The other thing I'm thinking is possibly to offer foods that can be eaten on the move, in the car on the way to nursery? Not ideal but I'm just thinking what I would do in the same situation.
Things like toast, muffin, flapjacks/oaty bars, pancakes are good for on the move and are also the sort of thing many people have for breakfast, what I mean is, it can be started at home and when it's time to leave you pop it in a baggy for her to carry to the car. Who knows she might even eat more if she wasn't being watched? Sounds a bit crazy but sometimes my DS likes to try new things when I am out of the room. He asks for dip or says he's finished and wants his fruit (I don't take either to the table until asked for) so I go to get it and whilst I'm gone he will try the new item on his plate! He also likes to practice new skills in private - but I have spied on him and seen it happen - maybe your DD is unsure about her self feeding skill and feeling self conscious about it? I'm not suggesting leaving her alone to eat but maybe keep it in mind and perhaps give the occasional opportunity where she knows she isn't being watched?
I realise now she has been asking to sit on our knees since we stopped feeding her but I've refused. Now I'm not too sure how to handle it. Is it because I'm bf'ing dd2 on my knee or is it another way of her trying to get attention?
I think it's probably both. TBH I feel really sorry for her. A rival has turned up on the scene and it is understandable for any child to feel the pinch of jealousy as their parents affections and time are suddenly shared with a sibling. If it wasn't the food issue there would likely be something else, another way for DD1 to show that she's feels side-lined (that doesn't mean she IS side-lined but it is how she feels that matters, I think most older siblings do feel a bit side-lined and need extra reassurance that their position in the family is safe). Unfortunately you have changed the feeding rules on her just as DD2 has arrived. I totally see it from your point of view that you can't be feeding them both, from her point of view DD2 has taken up pole position.
Feeding another person is an intimate act. Mothers (and fathers) feed their babies, lovers feed one another, the infirm hope that someone cares enough to feed them. It is the provision of a primary human need and most often comes with a big helping of love and compassion. From DD1s point of view she's just lost that and someone else has taken residence at the 'feeding hole' whilst she is, in effect, expected to fend for herself. It isn't going to be in her mind that you are preparing these meals for her, or that you care so deeply about her health and nutrition.
Personally I'd let her sit on my knee (if/when it is possible, when you are not feeding DD2 or yourself). Yes it could be a hard habit to break and without some careful handling it could end up being another 6 months until you could show her that DD2 is now sitting in her own chair and eating meals with the family. But I'd do it. For me reassuring her that she is loved and cherished and helping her through this period of adjustment is more important than a possible 'bad' habit. I'd set some ground rules and gently tell her these eg wait until she asks to sit on your/daddy's knee, then say something like 'ok then. Dinner time is over in ten minutes and I'll have to clear up but you can sit on my knee until then.' When the time is up say 'OK honey I have to clear up now. Pop back onto your own chair so you can finish eating. There's x amount of time left until bath' (this reminds her she can't stay up all night eating). Then maybe 5 or 10 mins before bath time (or whatever marks the beginning of bed time routine) if she is still eating you could say 'Hey honey. It's 10 minutes until bath. you can carry on eating if you're still hungry or maybe you'd like to go play with daddy for ten minutes?'
If you're consistent with the times and reminders she should pick up on the routine fairly quickly and might even eat a bit faster to fit that play time in.
Setting up a little table with a tea set, plates, napkins and a couple of her dolls/teddies could help her play through her difficult feelings surrounding self feeding. You could be one of the guests for dinner at her table with pretend food and drink. See how she is with you and the dolls, she might role play as the mummy telling the dolls they can feed themselves, or she might sit a doll on her own knee to feed it, she might even ask you to sit a doll on your knee to feed. It could give some insight as to how she is feeling, more importantly it could help her work through her own feelings surrounding self feeding.
Just a thought.
xx