A lot of the data we have is either slanted, misrepresented, or just factually incorrect. The trans suicide rate constantly repeated for instance is actually just suicidal thoughts. If the suicide rate was actually as high as they say then even despite the extremely small number of trans people the annual suicide rate would be many times higher and completely dominated by trans people. So much of this has become a horrible game of telephone. We need to forget this group identity nonsense and stop letting uneducated activists disseminate scientific studies for the public.
As far as this being a beauty competition so it doesn't matter... I mean, a lot goes into this and I don't want to write an actual essay. I'll just say that when one of the things you take pride in is intruded upon that most people feel threatened. I think these competitions are dumb and even potentially harmful to women's image in general, but letting an obese man in a dress win it is even more harmful because it says that women don't even have that beauty to begin with.
Is that harm good or bad? I tend to think bad because it denies the basic human experience, but the real answer is that we don't know the result of attempting to tweak these cultural levers. I will say you shouldn't ever feel bad for whatever you are naturally attracted to, we know now that it's just another inalienable characteristic. The point of a beauty contest though is to show what the plurality of people (at least within a sub group) find attractive. I can't imagine the target audience of this pageant is a group that finds him more attractive than these women, but I've been surprised before.