J.,
First, as the other post-ers said, put her back in diapers. Back off the training for now - she's very scared. In addition, your daughter sounds like she may have encopresis (aka chronic constipation).
The diarrhea means that she has developed a blockage & some loose stuff is escaping around it. She cannot control her bowels until you get that out. You'll need to change her diet and take out the foods that constipate (or reduce them) and add foods that make the poop nice n soft so it won't hurt her & comes out easily. (Sorry to be so graphic, but it's necessary here).
According to "It hurts when I poop!" by Dr. Howard J. Bennett, she should avoid pastas & bread made with white flour, and not eat bananas, apples, dairy, potatoes, and white rice. It says to add: whole-grain breads & pastas, fruit (especially prunes, raisins, and pears), vegetables, water, and fruit juices (apple juice is OK, just not whole apples). It's a great book; it has a story for kids & practical advice for adults about encopresis.
The sooner you start, the better.
Note: add fiber SLOWLY (or better yet, see a doctor that treats/knows about encopresis). Sudden increases in fiber can cause problems. Add 1 serving of fiber and do that for a week or two before adding another. But I think you can cut out the 'constipators' immediately. Encopresis web sites & books will tell you what to do. Some doctors and hospitals have special programs to treat it & have websites that offer advice & assistance.
Meanwhile, deal with her fears. You could try flushing a doll (not a favorite one) that's about baby size. She may feel better knowing that the doll can't go down the pipe so neither can she. If you have a basement and can see the pipes, you might show her how it all works: lift the lid off the tank, show her the curved pipe on the side of the toilet in the back, and then show her how the pipes go from the potty, under the house & into the gutter in the street.
Also, get some books for you and her on potty training and going poopy. The library should have potty training books & you can request an interlibrary loan to get others. I highly recommend Dr. Bennett's book on encopresis (mentioned above - "It hurts when I poop!"). I also recommend the following books, as fun potty books, to encourage your daughter: 'Everyone poops' (it's cartoon, but graphically shows the poops coming out, so may be offensive to some), and "Where's the Poop?". The latter is a lift the flap book showing animal parents asking their kids if they had a poop. The kids say yes (of course). You then lift the flaps all over the tree, the jungle, the savannah, etc., trying to find where the animal baby went poopy. The last one is a human child in the bathroom with the poopy in the toilet. The book ends on the next page with another child on the potty saying "Please close the door, I'm trying to make a poop!" My kids laughed & laughed, even the 9-yr old. They kept opening & closing the 'door' flap on that page.
I know about all this because my son had encopresis. We only recently realized that he wasn't getting enough fiber. We thought we'd compensated for the lack of wheat (he has food allergies). On our doc's advice, we added 'Fiber Sure' (small doses per prescription) to his drinks (he won't do prunes or prune juice) and removed bananas from his diet. We also added high fiber gluten-free bread and rolls.
Since then, he has done much better. We've made more progress on potty training in 2 months than in the last year. He goes regularly and just needs reminding.
In case you're wondering, do a google or yahoogroup search & you'll see plenty of others who struggled with their child's encopresis for a year or more because they didn't realize what it was and neither did their pediatricians. Once the problem was identified & treated, progress was made, though a complete 'cure' may take several months. So you may have to be patient, but she will go potty like everyone else sooner or later.
I hope this info was helpful. Take care and good luck.