Both my girls do competition dance and we see dances like this (from other studios, not ours) all the time. It is appalling. The first time we were exposed to something like this, several of the dance moms and I went to the studio director and thanked her for her good judgment in selecting costumes and choreography.
Unfortunately, the judges seem to like it, because those sort of dances always win. The past two years, several of the competition companies have started giving out special awards to studios whose costumes are "age-appropriate and tasteful", (several of which our studio have won) so I think there may be some efforts to tone it down.
The worst is when I have to bring my 12 year old son to a competition. He spends a good bit of the time with his head inside his sweatshirt, saying "this is inappropriate, tell me when it's over."