I don't think that practically works given the very small number of transgender people. To me you just make all sports gender and sex neutral and have divisions that get progressively harder.
But honestly, I don't know the solution and, as I've already said, I'm not sure where I stand on this issue. I'm just exploring the issues and trying to look at things in different contexts. My preference would be a solution that pleases everyone but that seldom happens so maybe the only solution would be one that everyone equally hates?