Every parent has to learn that sometimes you have to let your child "cry it out" for their own good. If your wife does not learn this now, she is in for a very hard 18 years. Good Luck.
Your wife sounds just like my husband! He can't stand to let them cry. I have a 7 year old that just started first grade and just in the last two months is sleeping in his own bed. We also have a 3 year old who sleeps with us every night. We have to sneek off to be alone.
I've given up. I can't "fight" the kids when I can't get my husband to let them cry. I can't see that making them cry when he isn't there is fair to them. They either sleep in our bed, without trama, or the don't.
Dear Mr. Wilson,
You have put your finger on the problem and on the solution. Your daughter is able to sleep through the night - the evidence already indicates this. Unwittingly, she is being encouraged to fuss because there is a reward for doing so - i.e., she might end up in your bed.
There's no reasonable alternative. You've got to bite the bullet and let her cry - she'll be fine. Often parents are reluctant to do this because they think they're doing some harm to their child. But of course they're not doing harm; they're actually helping their child learn a very important thing: how to fall asleep alone and remain asleep through the night.