Non EEA with expired passport married to EEA with PR

[ryanm56]

I just want to know whether you can provide us with an acceptable solution for the following case:

I am an EEA national and have a PR (permanent residence) in UK and my wife is a non EEA national who has been living with me in UK for more than 5 years.
When applying for PR, my wife has received all of her documents back from the home office with a reply stating that she needs a valid home office ARC card and this was the reason why they did not provide her with the permanent residence. (She has previously sent the EEA4 with all required documents in January 2012).
I called the home office and found out that the ARC is for asylum seeker only as my wife is not an asylum seeker.

However her passport has expired in 2008 and she cannot renew it. Furthermore, to renew it she needs to get a birth certificate in her home country which she cannot get because she cannot travel.
Is there any way for my wife to have her permanent residence knowing that she can prove that she is the wife of an EEA national exercising my rights in UK ,and that she has a letter from home office confirming that she is allowed to work as long as I exercise my treaty. The only problem is that her passport has expired and is too costly to renew and takes a long time to renew.

We have all documents proving that my wife has resided for more than 5 years, and has a full UK driving license along with her expired passport.

Do you think that we need to reapply again or if there is another alternative?
Thanks for any assistance