It’s also Phil who’s coming up with the idea, and he can see through illusions, so…

My assumption is that Phil asked Kate to start dressing up other people, be it herself, Phil, or both of them, up in illusions as well. I understand why Phil wouldn’t think it’s that different from what’s happening with Michelle at the moment, though the prep work does involve the people in question removing their clothing, which is a bit risqué.

Of course, Phil can also see straight through illusions, so he gets a pleasant eyeful if I’m correct.