But IMO she can't say "It makes me uncomfortable, but it's your decision," if it really is more like something she's so upset about she won't be able to get over it if he keeps it. She needs to be honest about it with him.

I totally get that she will have a miserable time if he says he wants to keep it. I would be devastated! But I'm about choices. I can't think of a situation where I'd tell my husband that he must (or must not) do x, y, or z. If I were in OP's situation and he decided to keep it, I'd be very hurt and concerned. I'd probably get us into counseling so that maybe I could understand his perspective better or he could better understand mine. But if I just tell him what to do, have we really grown? Has anything really been resolved?

Let me give you an example of this from my own experience.

I was in a situation where a woman I'm uncomfortable with (also from my husband's past, though they were never romantic) was overstepping boundaries by flirtatiously texting him to come visit her a few states away (when I was 9 months pregnant) and making collages of the two of them and posting them on social media on his birthday with inappropriate captions. I did not forbid him from having any contact with her, but I did tell him how uncomfortable she made me. I shed a few tears and allowed my insecurities to show. I was 100% open and honest and let him see the wound on my heart. He told me he'd never speak to her again because our relationship was far more important than a friendship with her, and he has held true to his word. We've not spoken of her name since. If he chose his friendship with her over my feelings, that would be a separate issue. It would then be an issue about me and him, not my feelings of insecurity about her. But if I said, "You cannot talk to her anymore because it hurts me too much," I don't think that we would've grown. I would've gotten my way, but I'd always be wondering if he resented me for it and if he desperately longed to talk to this other woman.