I'm another one in the 'reward, not punish' camp
DD, now 6, used to twirl her hair when she was younger and pull out great chunks when she was tired
She had a v short haircut until she was around 5 on the understanding that, as soon as she stopped twirling and knotting her hair, she could grow it long.
She's still a twirler (as, I've noticed, am I

) and still gets upset if she manages to make a big, knotty mess during the night but we deal with it now as and when. All it takes now is a gentle mention as she starts to twirl
She knows she does it but, as she says, she sometimes can't help it - especially if she's worrying about something.
I have every expectation that, to punish her, would make her even more upset and miserable than she is now when she realises what she's doing
The very things you are suggesting 'taking away' from your DD might be the ones that can help her to stop this habit - it must be sore and can't be much fun for her

The bandaids sound a good idea and I'd go along with the gentle reminders when you catch her doing it
Alison
