It is quite a picture. Nothing like any of their ususal behaviour, but there is no doubt they are happy :) I am not, they get quite out of hand and I have to remove the thing. I wondered if it was causing her any pain (the sound of the squeak)?
I would suspect that the squeaky is mimicking the sound of "prey" having 4 terriers myself I know how excited ( and sometimes out of hand) it can get!!
I find this interesting. We are taught that although some breeds howl it is generally in response to certain noise triggers or in some way a signal of distress- separation anxiety. I believe dogs use it for other purposes too, and that it varies from breed to breed and individual to individual. I think some dogs use it to express a visceral pleasure or frustration- it is as though some stimuli are so overwhelming (not in a horrible way) that they have to get it out of their system. Perhaps when your bitch witnesses your other dog 'killing' the squeaky her howl is one of emotion at the event, or perhaps she just wants it and is expressing frustration- I don't think she is in pain or distress though.
Of course groups of dogs may the the group 'wolf' type howling and I think some do use it to 'call' to other dogs and as another poster has said some do it as a group activity call like hunting. I find it fascinating.