Are these double-hung windows? Then my first idea would be the shades as you mentioned.

Another idea would be a double layer cafe curtain. Cafe from top to middle, and then another from middle to bottom. You could overlap the top onto the bottom a bit so that when they hung open they would "read" as one curtain (although you would have the middle rod at the window.) You could do a secondary cafe in a sheer at the bottom half of window for daytime privacy and to intergrate the look.

I can't think of any window treatment that will block light but let air through. Advertisements for solar shades claim they let air flow through, but they don't block out light.

A possible workaround would be tall freestanding wood folding screens placed in front of the windows about two or three feet away.

Here is a link that might be useful: Folding screen

Thank you both so much for the ideas! Yes, these are double hung windows. I'm trying to figure out if opening the top of the window and lowering a top-down shade would produce an acceptable reduction in light from what we have now.

The cafe curtains and the tall standing screen both sound like possible alternatives that would never have occurred to me. I think some experimentation is in order.

Yet another idea is to move the bed so the head is near the windows, instead of opposite them; that way a person lying in bed will not be staring straight at the outside lights.

A friend and I were recently discussing this. Her issue wasn't light, but privacy...at any rate, we need a solution that lets the air flow but "covers" us as we need it. The only thing I can think of is a cafe curtain on a tension rod that you can easily move up or down depending upon where you need the coverage. Maybe I'm too late to comment, but I thought it might help.

I think your first idea should work well, but for another thought, what about doing layered WTs with sheers and blockout drapes? Then put holdbacks on either side of each window and when you need air, pull the outer drape back and arrange on the holdback in way to obstruct the brightest part of the street lamp or traffic light, yet still let the breeze come through. This could work well if one vertical half of the window tends to let in more light than the other vertical side. The top-down/bottom-up blinds would work better if you need more horizontal control. The sheers should still be light enough to let in a breeze.

Is this more of a seasonal need to get an evening breeze during warm summer nights? In winter, the thicker WTs would also serve as insulation.

For another thought, is there any possibility to mount an awning on the outside of your windows to block the light?