I would recommend you to talk to the British Embassy in Tehran, they may have experience on similar cases.
I guess your wife never had an Iranian passport, so confiscating a foreign passport is not like confiscating the library card, it is a big issue. They would refuse the visa first, I think.
Big thing to keep in mind: be really careful if your wife went to any demonstration against the Iranian regime, there are always people recording/taking pictures and she may be prosecuted when she comes back if she actually was Iranian in the past. I was told of a case while I was there.
Ah, get the visa application form and check it, since if I recall, they ask about any other current or previous citizenship or your parents citizenships. I would never lie them.
I had a hard time with the second visa (more than two months) and I guess I got it because I was absolutely transparent.
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