I a firm believer that yes, dogs CAN feel embarrasment. I am also a firm believer that dressing them up in AWESOME Halloween costumes is not a source of this embarrasment.
Dogs love Halloween and they love to be dressed up in costumes.
I am not allowed into Petco during the holidays anymore because I will buy any dog costume they sell in an XXL. The options are usually limited, but this has not stopped me from accumulating a rather large collection of costumes for my mutts.
They love it. They love posing for the camera. They love the attention they get when they wear them. (I will agree and say that they do not love the hats and things on their ears...but eh, I don't like hats either, and sometimes, they are just necessary. Suck it up Puppy.)