I'm a SAHM, and I feel no desire to attend any Christmas or otherwise functions. I'm too busy to be sitting alone twiddling my thumbs. One should not assume that SAHM's are desperate to go out.
In my reading of the thread, I came to the conclusion (not necessarily correct) that BIL doesn't want her to attend his party because she'll get friendly with the men. He doesn't want to tell her that, so he came up with this other idea.
Question: Did either the OP or the BIL actually ASK the wife if she WANTS to attend?
I'm going to guess no. She'd probably have fun at his party. She might get mistaken for a waitress, but at least she'll be in the kind of place where it's not frowned upon to flash some flesh. Sure, she'll hit on his coworkers, get trashed, and probably end the night in a screaming match, but it sounds like that is her normal.
OP's party? She's got to know that she'd be miserable.
Personally, I would tell BIL, "Sure, she can come, but we're only going for an hour, she has to wear a dress of my chosing from X store and YOU are paying for it. Oh by the way, we'll be getting our hair and makeup done at Y salon prior to the event, and you'll also be expected to pay for that. Furthermore, If she has more than two drinks in that hour we are there, we will be leaving immediately."
Seeing as he'll also have to pay a babysitter, it would be a high price for a boys night. How desperate is he?
OP, you don't have to make things easy for your Bro. I also agree with PP that bro should stew in his own pot and you don't have to do anything. Her name was not on your invite.