Alarra and I will be dressing up in our usual garb. We have intentions of going to Goodwill near the house and seeing if we can buy them out of things that can be used for costumes and making that stuff available to people here if they didn't bring anything.
I don't know about doing a theme. I'm not sure if what I have is conducive to it. (Though it might once we raid the Goodwill!) The idea sounds fun, though.
Even if we don't go with a theme, dressing up for RenFest is a lot of fun and it's highly encouraged. (For the more affluent, there is a costume rental place on site, but I found them to be a tad expensive.)