I'd be completely on board with that proposal. There are many differentiators in sports that contribute to your success. Your sex might be a very important one but definitely not the only one that matters.
I would group different athletes based on skill level, strength, height or whatever is relevant in that dicipline. Being born with a penis or not shouldn't matter.
If we say that for a specific kind of sport the level of testosterone is the most important factor to success, than that should be used for the grouping. That way, men with low testorone would be the same 'league' as woman with a medium testosterone level and woman with a really high testosterone level would play along men with a medium level of testosterone.
From my perspective, this would not only end all these gender discussions in sports but also make the lower leagues way more interesting and more fair for both genders.