Both August 24th and August 25th are a special dates in Uruguayan culture. August 25th is Uruguayan Independence Day and is a national holiday. If you want to read about Uruguay's fight for independence, you can do so here. Shops will be closed and people spend the day with their families. The night before Independence day is Noche de la Nostalgia (Night of Nostalgia) where people go out en mass to huge parties around town and dance the night away to music of the past. The story goes that a local DJ created Night of Nostalgia in 1978 to remember the classic music of all different eras (and take advantage of the following vacation day). Since then, the celebration has spread and whether you like it or not, Noche de la Nostalgia a major cultural event in Uruguay. Most of the larger parties around town require an advance reservation. Some celebrations I have heard take place in tents and many include at least a few drinks or dinner with the cost of admission.
The night was described to me by an Uruguaya- saying that Uruguayans have latched on to this tradition because they are nostalgic people, that they relish a way to celebrate the glory days of this beautiful country.
The most entertaining and amusing account about Noche de la Nostalgia can be found at globalpost.com, from a talented writer whom we met in Uruguay March, 2008. Our first night here, our first dinner, we ended up talking to Ben and his wife. (2014 Update: Story no longer in archive of Global Post).
A list of events to celebrate the night in Montevideo can be found here. This site is also a great resource for other events for Carnival, etc.
Call it research, call it blending with the locals; we have our babysitter booked for Monday night and we're planning to go dancing!