I went back and watched her video- and it wasn't the sit spin that made me nervous- it was her footwork. She kept almost kicking her skirt, and I worried it would catch her toepick...
I think freestyle dresses are shorter just due to fashion. They weren't when skating started, and then they got shorter and shorter. Elite athletes set the fashion trends, and they look fantastic in the tiny skirts. They also really help movement- things like big spirals, aren't hindered by too much fabric, and rotation in big jumps. For the average adult skater, that just doesn't matter.
Dancers need to follow the look of ballroom, and while they spin, they aren't doing multiple revolution jumps- plus, you don't see as many giant skirts (still some, but I think they are trending shorter and simpler) in free dance where they are doing the super flexibility moves. The big dresses seem reserved for waltzes!
Except for a slightly fuller fringe, this dress from Maia Shibutani looks more like a freeskate dress than a dance one to me!
http://www4.pictures.zimbio.com/gi/Alex+Shibutani+2012+ISU+World+Figure+Skating+WOhiPM2dPKMl.jpg