Keeping them apart doesn't seem to work well. They want to play together. I do wear DD2 some of the time, but she is 31lbs now, and very stubborn - so she will often tell me "No, down now!" because she doesn't want to be on my back anymore. There's no way she would stay in a high chair while her sister was running around. We actually put the high chair away because she kept climbing out of it. Both girls have booster seats in the kitchen. I would say they get art and water time every single day, especially in the summer. DD2 has been walking since 9 months, so I think DD2 is pretty used to her being mobile by now. She's been getting into DD1's things for a loooong time

: They often want to be doing the same thing. If DD1 is doing something and I think DD2 is bored and I offer for her to color, then DD1 wants to be right there with DD2 coloring.
I feel wary of dropping the time out because DD1 gets so out of control. I don't isolate her from us, and I don't really see it as a punishment personally. It's more of a "hey, you need to calm down and take a check on how you're acting" type of thing. I always talk to her about why she's there at the beginning and the end, and of course, it's never longer than 3 minutes.
Both girls get some individual time. DD1 actually gets more than DD2, IMO. DD1 does not nap, so when DD2 naps, DD1 gets alone time with mommy. Sometimes we watch a movie or do a craft, or sometimes I have her help me with picking up or cooking. We try really hard to use a lot of positive reinforcement. She is usually very good with her baby dolls. I guess the issue is that it's hard to get frustrated with a baby doll. It's very easy to get frustrated with mommy or little sister.
We are on vacation now for about 5 weeks, and I have been trying to be more lax with the girls because they both seem a little confused by the change in venue. DD1 bit DD2 at the hotel we stayed at on the way down (while they were in the tub). DD1 bit me in the pool yesterday when I put DD2 on the float instead of her. They were taking turns and DD1 had just had her turn. I am trying to work on helping her to express how she feels with words. She is very, very articulate, so I'm hoping that I can help her to learn to say things like "Mommy, I'm feeling very frustrated/angry/etc. because..." and then I can help her with whatever is going on.