Looks like there is nowhere near enough geometry in the dress for it to deform properly.

Why model geometry that is hidden by clothing? It only adds more work and more potential problems. If you delete what will never be seen life will be a lot easier.

I think the bottom of the dress needs more geometry because it looks like there is a line of verts at the wasit and one at the bottom so it pushes the bottom ones out and hence you get a straight line from bottom to waist.