The new
sample IRS Conflict of Interest Policy
might address some of this.
Some groups may have a prohibition against doing business with
any board member - or even any parent - in their PTO, I think more of us are concerned about proper
disclosure of information that affects related decision-making.
The type of craft/home business fair you describe is fairly popular and relatively low effort for a group to host. It offers the opportunity for many different vendors to participate. What would be wrong with the president being included?
In my mind, she would have the right to raise the suggestion as a PTO member and disclose her interest as a vendor, but she'd have to abstain from any vote or from influencing the decision in her role as president.
Conflict of interest policies don't necessarily prohibit transactions/activities. They are supposed to ensure that all pertinent information - including any conflict of interest - is presented and considered when making the decisions.