Given your daughter's eagerness - and incredible frustration - I wonder if you might actually want to try supplementing your O-G tutoring with AAR at home? Twice a week is actually not much for that kind of tutoring (I believe five times per week is suggested). Talk to your friend to make sure you wouldn't be working at odds with the formal tutoring, though. Or maybe see if she can give you materials to work on at home to perpetuate the lessons in between the tutoring sessions?
I've had a daughter reach a similar state to yours, and her anxiety level and self-worth were both in scary places. The most wonderful thing about AAR for us was how, and how quickly, it had a huge impact on both. When DD started with AAR, I did my best to eliminate all reading (and writing) from outside the program: we read only the AAR books. This meant that I never asked her to read anything that included words she had not been taught how to decode, explicitly and systematically, in a way she could learn. Which meant, suddenly, for the first time in her life, every time I asked her to read something, she could succeed. There are just not words to describe what this did for her.
I will talk with the tutor about this. I don't know if I'd start her at level 1 or something else. Part of her struggle is that she doesn't like reading "boring" books (aka leveled readers). I'm not sure how much we can afford to drop right now, but I am pretty desperate to help her achieve some success as quickly as possible (for her sake, not mine).