Just as an FYI, holding her probably makes it worse. She's learned that barking hysterically will get her held. Also, when they are higher up, they become a lot more defensive. Jackson is probably the most socialized dog I know, yet if I am holding him up in my arms and a dog tries to jump on us or something, he has growled and I couldn't believe it as I had never seen him do that before. But I often see people with little dogs holding them up in the air, or walking into dog parks with them in their arms, or keeping them on a leash while all the dogs surround them, and it just makes the situations worse.
As for the walking and barking/lunging at other dogs... try using her favorite treats (for jack-pot rewards, I use chicken or cheese). Watch her body language and try to catch her BEFORE she goes into a fit. You can teach a command like "watch me" etc and every time she turns and makes eye contact towards you, and not the other dog or object she's barking at, give her a treat and praise her. If she starts barking, simply turn the other way and start walking. Each time she barks, you turn around. Turn each walk into a training session for a while -- it's the only way you're going to get her to stop or improve.
Try watching YouTube account
kikopup. She has some fantastic training videos on how to stop this kind of behavior.