what is the best/preferred method for setting up a character that will need to have different outfits?

best is not defined. it depends on so many things. Such as how the charater is done.

is it best to just have separate rigs for each outfit...?

well it certainly is easy, but not tecceserlit best in all circumstances. It may become cumbersome if you need a LOT of different clothes, and the files need to move between studios a lot.

here are some actual answers instead of "well it depends"....

try to create a "build" system so you can easily make changes to the entire pipeline.
the goal is to be able to easily change stuff (versions, techniques, tools, resoultions) for the entire pipeline, for every character with as little "manual" work as possible

ideally you would have data in a seperate format, ie: a database saying Betty can wear dress1, dress7 and pants2.  she wears the dresses in size 6, yellow and black.  the pants are size 4 and red. etc.

then, your build system would take the patterns/meshses, modify them (for example add buttons or make it a different resolution, etc), size them, build the simulation clothes, place it on the character, drape it, set up the simulation run if needed, etc, anything the computer can do without the artist's time

if you are familiar with the computer programmers program "make" it works like that.  another example would be that an artist as modified a mesh for whatever reason, then the "make" system checks that the end simulation is older than the input mesh, so it knows its out of date and builds it again

studios do this with characters, too.  ie: there's a character definition file outside of maya, then each time the character changed then is brought into maya to animate or render, its gets rebuilt with all the latest (or approved) pieces

rebuilding stuff procedurally each time also helps keep bugs out of your files, bugs/problems like a corrupt cloth that makes maya crash on start up (that's what i'm fixing today....)

hope this helps

chris