While your daughter is genuinely frightened and you've tried other ways of helping her that didn't help,I think that sleeping with her is the nurturing thing to do. Yes, she might have a difficult time sleeping on her own even tho she's no longer frightened. You can deal with that if it does happen. I believe that helping her feel safe is the highest priority.
I agree that openly talking about monsters as something that will not hurt us may also help. So might seeing the movie, Monsters, Inc. It was one of my granddaughter's favorite movies for a couple of years around that age. Many of the monsters have friendly personalities and seem almost human. And they are frightened by people. The movie puts a good face to monsters and reassured kids that since the monsters know how to deal with their fear they will soon know how to.
Spending more time with her during the day may make her fears less intense at night. It's important to not make the older kids "bad guys who need to be punished or with whom you're angry. Letting her know that you are unhappy with the boys adds to her tension and belief that the stories they told her are more likely to be true. Otherwise why would Mom be so upset. Treat the stories as stories. Find books about monsters that are written for toddlers and read them to her. Anything that you can do to show her that these monsters are no big deal will help her learn that they truly are nothing to worry about.
Did the older kids laugh at her reaction to the stories and perhaps tell her she is a "scardy cat?" Her fear may be related to the way the kids stories were told and their teasing, bullying reactions to her. This may cause her to not feel powerful or capable to knowing what is true and what is not. This increases her anxiety and takes away her confidence. (power)
Is it possible that she is having night terrors rather than night mares? Night terrors are common at this age. Medical science doesn't know what causes them but believe that terrors are different than nightmares. If they're night terrors it's possible that being exposed to scary monsters is not the cause of her waking up screaming.
A toddler does not actually wake up during a night terror episode. They look awake but cannot be reasoned with. The often don't want anyone to touch them because they are extremely frightened but still asleep and don't recognize the parents. The toddler usually cannot be calmed down by the parent. Many professionals recommend staying in the room with them but wait until the toddler has actually woken up and is aware before doing anything. The toddler who'se had a night terror rarely remembers why they were terrified. They can't describe a dream.
YOu commented that you may be making it worse in the long run by indulging the behavior. Before that you said that she needs you so that she can fall fall asleep. An important role for parents is to take care of the needs of a child. She is frightened of monsters in the night. She does need you. In the long run she will feel safer because she knows that she can rely on you to meet her needs.
If doing this creates a habit then she needs you to help her feel safe while sleeping alone. At the time you need to break the habit she won't also be dealing with the monsters. Then you can use a reasonable approach, explaining why you need her to sleep alone while also reassuring her that you love her and are in the next room. Explain that sleeping together has been pleasant and was necessary for awhile. She's a big girl and it's important for her to have her own bed so that she can continue to grow. Emotional maturation but I think that she's too young to understand the reasons. As a toddler she will accept only what she understands. Giving too much information is confusing.
In order for us to feel safe as adults we have to feel safe in those first 5 years. Once the child has completed the developmental task of feeling safe they are then ready to move on developmentally to other tasks such as learning independence. The only way that a child will grow up feeling safe is when their world as been consistently made to feel safe by their parents.