What to do about potty backsliding?

About a month before DD1 turned 2, she had a diaper rash, so I had her going w/o diapers, and she started using the potty most of the time for both pee and poop. I thought she was well on her way to being fully toilet trained. At about 27 months, she suddenly stopped using the potty. Now, she is 29.5 months, and we (I, being the at-home parent) are fed up with the puddles and poops. She wears either underpants or diapers during the day (I usually keep her in undies at home, but she wears diapers when we go out and at nursery school (they do potty training there, too, though)) and at night.
DH and I have discussed what to do to get her to use the potty again. What worked for me when I was her age was that my mom, who gave me warm baths when I pooped in my diaper (I used the potty for pee), started giving me cold baths. What worked for DH was his mom took away his Hot Wheels when he had an accident. Rewards have not worked with DD1. We have decided to use DH's mom's system and start taking books and toys away from DD1 when she has an accident. However, we are not going to start doing this until after Xmas because we will be traveling at that time. We are trying to decide if we should put her back in diapers or keep her in underpants until then. Will putting her back in diapers give her the idea that it's okay to go in her pants, or will putting her in underpants just make for lots of laundry and puddles w/o helping her to use the potty? Or both? Is there something better we can do about this whole situation? We refuse to do nothing and let her continue to wet and poop in her pants.
I should mention that we have a new baby, so I'm quite certain that that is part of the problem, but she started backsliding well before DD2 was born, so I don't think that was the initial cause of the problem.