I’ll jump in here with a couple responses. I do know the phenomenon to which the article refers, and I agree that I don’t remember it from my trick-or-treating days (late '70s through the '80s). OTOH, I agree with your last point about the costume pictured above the article–but only partially. While the costume isn’t that bad, the pose of the girl modeling it and the “come hither” look she’s putting on are totally inappropriate, and not what Halloween used to be about or should be about IMHO. Lots of costumes I see in catalogs, including the very popular Hannah Montana numbers, fall into this borderline category where the apparel might not be that objectively slutty, but the models wearing it are striking poses that push it over the line. It sometimes seems to me that the catalogs are playing CYA, showing stuff whose hemlines etc. are defensible, but posing the models in ways that aren’t.
And this actually fits in with what I see at my daughters’ school. (They are in third and first grade this year.) At last year’s Halloween parade it seemed to me that of the girls who had on the Hannah-Montana-tight-gold-pants-and-halter-top ensembles, or the Ariel/Jasmine numbers, etc., NONE had the sexual moxie to pull it off, so that the actual effect was all rather innocent. At a junior high parade I might have felt considerably different–but then again it seems to me that, again, looking at catalogs, not all of these outfits come in those sizes.
As to how we handle it in our house, we make our own costumes, and I encourage my girls to eschew the catalog costumes in favor of ideas they come up with on their own. One of the things I like best about Halloween is getting to indulge my crafty side, anyway, so this works for us all around. OTOH, we make exceptions, too–last year my daughter wanted to be Hermione from the Harry Potter books, so we invested in a good quality Hogwarts robe and some other accessories because I thought they’d actually be useful beyond Halloween and for the other kids, too (and they were–she wore them to a Harry Potter camp this summer). But sluttiness wasn’t an issue with that costume. The other daughter was Marvin K. Mooney from the Dr. Seuss book. (A few years ago they were the yellow dog and the red dog from Go Dog Go.) I have also made a spider costume (that they both wore), a cat costume (sweatpants, not leotards), a pirate costume, and various others. This year the older daughter is going as Dolores Umbridge (again with the Harry Potter, but a trickier costume), and the younger as an Egyptian princess. The baby will go as a crocodile–I bought his costume at a consignment store, which I highly recommend to anyone.
One final note… I have NOT seen other suburban moms dressing up in slutty outfits, as the article describes (though my husband is the one who takes the kids trick-or-treating and I bet he would like that very much!) I don’t dress up, myself–I stay home, drink a beer, hand out the candy, and tend the campfire in our backyard fire-pit (we make s’mores after trick-or-treating–overkill, I know)–and I don’t know any moms who do. Halloween parties for adults aren’t really part of the holiday in our demographic, either.