Just to say, while toddlers can understand words, instructions etc, they don't have the self-control to follow rules all the time, and don't have empathy to appreciate why they need to be gentle with animals etc. Even supernanny doesn't advise things like naughty steps until age 3....
I'm aware everyone has differing opinions on parenting etc, and as a dog forum this isn't the place for a major discussion on the subject, but I think rather than seeing it as being on one side or the other, you need to view it that both of them need to learn to live with each other and you need to facilitate that... lots of positive time together, and kept seperate when either one of them is not in the right frame of mind...
And I defy any of you to come and "reason" with Isobel... understanding some boundaries, yes, absolutely - as I say, she is well aware of the fact that she isn't to approach the dog bed etc, but she has no concept of "reasoning".