Lacey was somewhat similar to that when I first got her and over the last year and a half I've noticed her fear reactions really lessen as she realized that I'm not going to abandon her in her fear and that I'll "protect her", yknow?
In Lacey's case, she reacts very well to verbal praise so I trained her that "good girl" meant that she was an amazing good horse. I'd say "good girl!" and feed her a little grain...gradually I weaned her off the grain (like you would training a dog) and she still reacts to "good girl!" quite happily. Then I started introducing her to things that she found a little more scary, like the road and big black things, and I'd reward mostly calm reactions with "good girl!".
I also discovered that if I act like it's no big deal and chuckle, or sigh or just ignore whatever it is, to myself, most of the time Lacey doesn't have as bad of a reaction as she would have had if I reacted to her reaction. So basically, when you accidentally do something that causes Dixie to get nervous, hold yourself tall (it's a human reaction to flinch or hunch over, both things that tell her "be scared!"), laugh to yourself, and say "oh Dixie, you silly sweetheart!" (or whatever you're inclined to say, in a happy upbeat voice) and see what she does. I bet she'll feed off your happiness and calm down too.
Since you know the towel frightens her, I'd add towels into her everyday routine. She'll figure out that the towel isn't so bad and she'll also probably decide that you are the reason the towel isn't hurting her, which helps your mutual trust relationship. =)
Good luck! Sorry about the novel.