I have a 16 week old puppy, Mia, and a two year old Yorkie... Lily LOL!!!
I think it sounds like you are doing all the right things! We actually run a pet sitting business so Lily is introduced to a variety of dogs... I've noticed that if I stay out the way as much as possible they all have an easier time establishing their roles. Remember that this is only temporary!! They will eventually coexsist fine!
Lily may feel your protection, maybe that's why she's not standing up for herself???
I'll use the couch as an example of positive things to look forward to (sometimes they are small) Lily may not want to sit on the couch with puppy then she will sit on the other end, slowly over time they will both sit with you, then one day you will be getting ready to watch a movie and poof they are snuggled up on the other end of the couch...without you!
Also I have lots of tug toys in the house that have two ends to tug, so both dogs can tug. I start by tugging with Lily then let puppy take over, I've had lot's of success with this.
Good luck and enjoy!!
Also any pictures?
