So I guess there was some misunderstanding. I thought the item was supposed to remain visible.
The only problem now is that she is hovering above the ground.
Here's some pictures in order showing the problem:
Standing with item:

After pressing down, crouching animation starts:

The next frame has her in the fetal position with item still visible.

The next frame has her in ball mode on the ground as it should be. (item is invisble)

Right after that frame, she launchs upwards until she is in the position seen in the screenshot below.

As you can see, she is hovering in ball mode, above the ground.
If you keep DOWN held, she floats in place here. If you release Down, she immediately flies back into standing position.