That is a good point. Given Sarah's penchant for embarrassing behavior, it might be smarter to let her in so as to keep an eye on her...
I really think it would be better for the RF if Sarah was at the wedding, rather than not invited.
Can you imagine the headlines if Sarah was not invited:
"Royals Snub Fergie (Again)"
"Despite the guest list for William and Kate's wedding having ballooned to 3,000, the Sun can reveal that Sarah, Duchess of York is not invited.
Prince Philip has apparently banned her...."
etc. etc. The story of how the royals mistreated Sarah yet again (first the measly divorce settlement and now this!) circulates America in the weeks running up to the wedding and is re-hashed for years to come.
On the other hand, if Sarah is invited, what's the worst that could happen? Granted, Sarah has a penchant for disaster, but I don't think even she could eclipse Kate on her big day. If Sarah is invited, she'll show up, the cameras will focus on her for a few seconds, and then all eyes will be on Catherine again. It's a win-win situation for Sarah and the royals: Sarah gets a chance to prove she can behave properly at a big royal event, and the royals get to look charitable and forgiving. I honestly don't think many people are going to think worse of the royal family for allowing Sarah to attend the wedding.
And the idea that the Queen/Prince Philip/Charles/Anne will "wipe Sarah out" if she ruins the wedding is a stretch. Sarah simply isn't close enough to William to ruin the wedding, IMO. She doesn't have any dirt to spill on him. The worst that will happen? If William and Kate are married in Westminster Abbey in 2011, it will be 25 years since Sarah married Andrew in the same abbey...and she will make the connections, over and over again. But we have heard all that before.