It means nothing. Hell, I am Mexican and if I wear a sombrero (which, literally just means hat, any hat), it just means either its really sunny outside and I don't have a cap for some reason, its an old-fashioned town party or I just felt like wearing a hat. A sombrero is not a yamaka, it has no religious or deeply symbolic meaning beyond that of a baseball cap or a pair of overalls.
Nobody needs to have a party with sombreros, but at the same time, there is no reason to ban a party with sombreros, just because it is a party with sombreros. Thing is, we don't ban everything that is not strictly necessary for survival, we ban things only when there is a damn good reason to ban them.
I'll give this whole thing the benefit of the doubt, either way, because I really don't know if the point of the party was just to wear sombreros or if there truly was some sort of weird racist overtones to it. Like, if I throw a party back in Mexico where we all dress in baseball caps and overalls, that's probably fine. If I do the same, but additionally make it known to the guests that part of the party theme is to act like stereotypical rural Americans from the southern states (e.g. I go and call it a "hillbilly party"), then I am not so sure I shouldn't be called out on that... (where "called out" is different from "evicted").
If the party was being used as a platform for racism, then yeah, cancel the whole thing, talk to students involved. If it wasn't, if it was just about having fun and wearing a "funny" hat... well, I fail to see the issue, even if it's my country's funny hat.