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In this episode of Blansky's Beauties, Joey DeLuca mentions a cousin in Milwaukee named Carmine Ragusa - a character also played by Eddie Mekka on Laverne & Shirley. Since Joey is Nancy's nephew and Nancy was introduced on Happy Days as Howard Cunningham's cousin, this implies a relationship among these characters from all three TV series.
The solution to the dilemna of this episode is that the girls do technically dance topless - but wearing raincoats the entire time.
The flashback sequences in this episode point to Milwaukee in 1967, not agreeing with the later on-camera continuity documented in Laverne & Shirley (Season 6) showing that Laverne had moved away from the city by this time.