For some reason they became permanent and they are facilitating this particular thieving scumsucker (whom seems oddly familiar)

The costume shop is part of the museum of events. It's been around for a long time I think? I believe costumes were introduced during Scavenger Hunts, which makes perfect sense since those usually take place during Halloween. Perhaps the costume shop should only be open then to prevent using them to hide identity, or perhaps that IS the idea with it? I don't know, I somehow doubt that was the idea though.

I also seem to remember that at some point you could only get costumes during Shire parties? Perhaps that was before we got events? So long ago, I might have mixed things up though.

Costumes are fine for RP purposes, but as lots of other things they are getting abused by one particular dickhead for harassing purposes. Basically I would say as soon as hostile action taken (stealing, attacking, etc) they should be automatically removed. Or maybe even a simpler fix, in combat and stealing messages show true description of the person, not the costume.

I am curious whether the costumes allow a player to bypass some racial checks... like allow some races to get into Minas Tirith or Vingaard Keep?

But I agree with Cherek's suggestion on limiting them to event holidays like halloween.

Ya, it does, limit them. If he's a human and wearing a hobbit costume, I have to kill! hobbit, kill! human wont work

As a human who is wearing a kender costume you still get "feeling silly" message when wielding hoopak from mithas,
so you can not use it as real kender.
But when you try to wield a weapon with "slay half-fling" imbuement, you get hurt.
So it seems a costume lets you bypass imbuement system policies but not some of the older ones.

It's a matter of badly written code, which means I'm 99% sure there are such instances :D

The hoopak was able to be wielded with a kender costume but Orien figured it out and ratted on you fake kenders!

Ha! If only people kept their mouths shut about the costumes. I used to like grabbing an undead one so I could herb Raumdor freely.

And if people hadn't abused the costumes to such a degree..
That might have happened.