"One potential problem is that someone could consider sexually distracting clothing as contributing to a hostile work environment. It creates a sexually charged environment where none should exist."
Cleavage should never be blamed for creating a hostile or sexually charged enviroment. Thats essentially blaming the woman should a situation like that come up. If a male were to make a sexual based comment about her breasts, is that her fault? No. He would be the aggressor.
And I don't understand why it wouldn't be appropriate for a woman to wear a sleeveless shirt if her underarms weren't shaved? I know the idea of beauty nowadays is to be tall, thin, tanned, plucked, highlighted, Botoxed and shaved everywhere (and I mean everywhere!), but if an employer told me I wasn't allowed to wear sleeveless shirts because heaven forbid, I don't shave my underarms, I would consider that sexist and inappropriate.
Now, I do shave my armpits because I choose too, but some woman don't, for many reasons. Irritation for example.
I've been asked before at jobs to wear different shirts. I have an ample bosom, and both times I was wearing a v-neck with a cami underneath. Yet, I still had some cleavage. Not a ton, just some. I'm a woman, I have boobs. However, if she is just plain dressed sloppy and has a ton of cleavage hanging out, she needs to change.
She may not have the money to buy more clothes right now. Maternity clothes aren't cheap, and having to buy them frequently in less than a year can be tough. I would put a dress code in place, then talk to her about it - give her time to get some new clothes.