Thanks so much for checking both those settings, Karl. That second one, set in System Services, seems to make a difference with this particular sharing feature, so we wanted to be sure.
Again, we know you've been hard at work troubleshooting this, let us know if you've been through this process.
On your wife's iPhone, please have her stop sharing her location with you. You should see a message in Messages on your iPhone that she has stopped sharing her location and likewise, in the message thread with you on her iPhone it will say she stopped sharing her location. Restart both devices. Then have her enable sharing her location again, do this from the Messages app. You're looking for any pop-ups that might be saying that in order to share her location she needs to change a setting. If you see that, it should have an option to go right to the needed Setting from the dialog. Do that and let us know where it takes you.
Additionally, she should now see in Messages that she has started sharing with you and you should receive a notification on your iPhone that she has started sharing as well.
That pop-up is important if it shows because, if it gets ignored, things will still look like they are set to share but they won't because of the missed setting.
Thanks for continuing to work on this with us.