Well the first one separates the 'holding' clause from the closest possible referent. Without that comma, it would be natural to read it as a construction 'her in X doing Y', that is she is in X and she is doing Y. For example:
He imagined her in bed tossing and turning.
With the comma, this reading is less likely - the separation is a sign that the 'doing Y' goes with something even earlier in the sentence ('he'). I don't think you strictly need this comma, but it makes the sentence easier to read in its correct meaning.
The second comma is obligatory, but it's harder to say why. I suppose without it you'd get 'laughed lost' together - 'lost in each other's arms' was the way they laughed, which makes no sense. So the comma separates those, and again it is a sign that the 'lost' phrase refers to something earlier. It relates to 'they', not really to their talking and laughing.