K.:.
This is exactly why I am against kids bringing personal items to school.
Why is there no punishment for her not listening? She's 7, old enough to know better. After all, she IS sneaking items into the school & disobeying you. Were you doing anything to enforce the rules? Were there any consequences for blatantly breaking them?
Personally, I think I'd let it be, so she could learn her lesson. Maybe this is what it had to come to for her to see why shouldn't be bringing personal things to school. If you bend over backwards to get the item back, you're still telling her it's okay to bring her things to school against your wishes. She made a mistake, now she has to learn from it.
If you choose to try to get the item back, you need to have an actual conversation with the mom. I mean, really, you are taking two 7 year old's at their word? C'mon now. Kids misunderstand & make things up all the time. Maybe your daughter did give it away, maybe the other mom doesn't even know her daughter has the toy. You don't know the truth until you talk to the other mom, period. To believe hearsay from 2 kids is ridiculous.
I am not saying the other mom is right at all. She may be strict according to what you've "heard", but it sounds like her kid also listens to her & respects her wishes.