I had to get a little creative. On production UO any player-owned NPC can hold costumes but doing so does not change their body value.
It was a bug reported here a while ago but left it alone since players seemed to like it at the time.
Moving forward it did have to be tweaked a little though. Stewards and Mannequins, also confirmed on production, will no longer change form if holding a costume. Player Vendors, for now, will still be able to hold costumes but also will no longer show up as a monster in the tracking menu.