Would publishers be willing to go to the level of pulling a Milli Vanilli where they hire people to make appearances as the author? Or would a litmus test to see if an author has attended any book signings be valid?

Fewer and fewer author appearances are in person. Book signings are being limited more and more to the author's name and are done via pre-order, with the readings and chats done online (especially with well-known authors). Book tours are much more rare than they were. Book tours are expensive.

That sounds like a cost of doing business so the question is whether using this method increases profit more than any other.

https://en.wikipedia.org/wiki/JT_LeRoy#Exposure