Keep Your Money
Tradeline won't reappear if you pay. But I'm with you and against the wife's position that it would be a good idea to do so.
The inquiry threat isn't terribly worrisome, although collections inquiries can be a problem for some potential creditors and keep you from getting credit at some places. A lot of people believe that if it's out of statute, a FOAD letter makes it clear that permissible purpose for pulling an inquiry is gone. Also, their threat may be an FDCPA violation if they know it's out of statute. Could be worth $1k to you.
The biggest worry would be a 1099-C, and it might make sense to DV them instead of using a FOAD letter so that you have records that indicate a lack of documentary response on their part so that they're either dissuaded from filing a 1099-C form or so that you have some ammo to argue to the IRS that you shouldn't be made to recognize the phantom debt cancellation income in the event you do get a 1099-C next January. Again, to the extent they violate the FDCPA, get their $1k.
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