This is a kind of poetic language, in which "smiles and admiration" are characteristics of the subject "she". Up to now I'm sure you would have expected to see something more straightforward, such as the compound sentence:
She was sitting with the Princess, and smiling and admiring her.
In creative writing (like fiction or poetry) writers are free to organize their words in all kinds of ways that may seem ungrammatical, but which are intended to have a particular effect. In this case, the "A is all X and Y" structure means "A is full of X and Y" or "A is doing nothing but X and Y".
While the popular image of the Roman Empire is all gladiators and orgies, the truth is that the empire was a massive bureaucracy, which, like any other in history, produced a massive number of documents, some of which have survived.
Outwardly that Christmas she was all good tidings and cheer but inwardly she was full of worry about her missing friend.