You have to beat the game once (any difficulty) before dressing the characters in silly costumes.
Sheva's 'Business', 'Clubbin' and 'Fairy Tale' attires are unlocked by beating the game. Her 'Tribal' outfit is unlocked by shooting all BSAA medallions (30) AND beating the game. You don't need to shoot all medallions in a single play-through, you can replay past chapters to shoot the ones you missed.
Same deal with Chris. Beat the game to unlock and wear his 'Heavy Metal', 'Warrior' and 'Safari' costumes. You can also unlock his 'STARS' outfit by shooting 25 BSAA medallions, same deal as Sheva's 'Tribal' outfit.