I went through this as well with my daughter. I honestly thought she would go to college with her binky. As much as it seems like a big deal to you right now, she will eventually give it up in her own time. As much as my daughter was addicted to hers, the day she was ready to give it up, she never looked back.
That is great that you are limiting it to nap and bed time. I would just keep explaining to her during the day that she is a big girl now and does not need a pacifier. I would just try to deal with the day time crying, crankiness, or whatever trouble she gives you.
Sleeping time is harder to break because it is such a comfort habit. Nothing worked for us at first--no binky fairy, giving it to baby sister (our girls are 20 months apart, so we were in a similar situation with the baby), throwing it away, saying it is broken, etc. What finally worked is this: we gave her one binky and said that that is the only one--the others are lost/broken. We put a pinprick hole in the tip so that there was no longer suction. She was OK with this, and kept it in her mouth at bedtime. I let this go for a few weeks. Then, we gradually cut the hole bigger until there was nothing left but a stump. At this point, she held the binky in her hand to sleep for a few weeks. One day, she finally said, "I don't want this in my crib." I took it away, and that was the end of it.
Our pediatric dentist said that the binky really isn't a big dental threat until age three. I'd keep working at it, and give her some time. She will give it up! Good luck!