Absent any physiological problem, I don't understand why this kind of situation is not treated as delusion. Does the medical community indulge delusional people or do they try to ascertain why the person is in denial of reality and try to fix it?
I'm concerned that politics is interfering with treatment for mentally ill people. I have all the sympathy in the world for people who are ill. It can't be at all easy to not fit in your universe. I'm not even sure whether delusions can be well treated!
I'd feel a whole lot better if someone with knowledge and authority came forward and explained that delusions are stubborn things and in cases where people can function relatively normally, we've decided it's better to just go with it.
Again, I think you need to be careful about making sweeping generalizations. It may not be clear why a kid "wants to be" a girl or a boy -- it may be a delusion, or there may be some underlying cause that we don't recognize.
The goal should always be to do what's best for the kid -- though it may not be obvious what is best.... If you treat him for "delusions," you may actually end up doing him more harm than good.
Anyway, I think things like this are best handled on a case-by-case basis. They are rare enough, and different enough, that making any sort of global decision is probably not warranted.