I wonder if she's getting confused because you're putting a towel in her toiletting area? As that and her bedding are both fabric she might not be able to differentiate. Could you put newspaper in her toiletting area?
Having a large crate with a bed at one end and newspaper at the other worked well for William, who was way too fastidious to tread in his pee or poo, but it was disastrous for Louis. He was terrible at night, very restless and I was having to wash a stinky puppy every morning
. He hated the crate so I made a playpen area instead using puppy panels. Louis had his soft bed in one corner, which was already his favourite place to sleep during daytime, an area of newspaper for toiletting and the rest of it was just an area where he could lay down or play or potter about. It worked like magic and he was a lot more relaxed.
Helen's method of getting up in the night and gradually making the getting up time later and later has been used successfully by a lot of people on here. I chose not to use it, preferring not to get up in the night once I was sure that the puppy was happy and secure enough to go through the night with no more than the occasional wakeful period without distress. It doesn't affect day time house training but they take a bit longer to be clean through the night.
It also depends on the puppy. William was going through the night and asking to go in the garden during the day by about 13 or 14 weeks without me getting up in the night. Louis took a lot longer to learn and wasn't fully clean until about 20 weeks
. He's nearly 3 now and still a late developer in lots of ways