The article linked above states that parents must provide confirmation that their kid is transgender, and what gender they identify as. Only then is the school obligated to let the transgender person use the bathroom of their choice. This is not perfect, but neither is any policy. To me, the parental consent is a good bridge until the child is medically diagnosed as being transgender, but still I don't think we should run into that many issues. I think the best thing to do would be to give the family a certain number of days to produce a diagnosis for the child after they give permission. If not diagnosed, the parents will have to face legal trouble. The legal trouble will stop people that just want to make a point and let their child go into the restroom of the opposing sex.
I agree with you on the fact that transgender athletes must compete within their biological sex.