All distinctions such as these will have "winners" and "losers". I don't call on morality or fairness - just distinctions that are the most meaningful in terms of competitive advantage. Is Lia Thomas one of those tiny fractions of people born biologically male but developed physically in a way that is typical for females? If not, I'd say we are shafting every female that has to compete against her.
If there is no competitive advantage to being an MTF trans in female sports, we should expect to see as many high-performing FTM trans playing male sports. I haven't heard of any but I haven't looked either. Also, if we do get to the point where it's generally accepted that "sex" isn't binary, we need to expand Title IX accordingly. For every MTF trans female sports scholarship, we need to give an FTM trans male sports scholarship.
If we really care about competitive advantage, we'd be screening for testosterone/steroids on both the boys and girls side, not to mention cracking down on the phony documents we all know float around southern California for playing sports. The reason we don't do it of course is because parents would balk at regularly subjecting their kids to testing just to catch a handful of cheaters and would just go to another league that doesn't do it. A good guide post is that if the matter isn't serious enough to steroid test, then it probably isn't either to use a heightened scrutiny standard against transgenders (that thumbnail would require heightened scrutiny for Lia Thomas). Or we could go the way of the Ohio bill debated, but I think quite a few people might take umbrage if their goat daughter was forced to undergo a physical exam because the other side wanted to mess with her before the championship game. We've all had the moment when the beast of a child walks on to the field and the other side says "there's no way they are age X".
What's even more complicated is the state of California has moved to loosen standards to change gender on a birth certificate. The federal government is moving the same way as passports. So if we really care about this issue, the paper won't be sufficient in any case. BTW California has now even further complicated things because it allows people to now declare "nonbinary" on birth certificates, rendering them near worthless for determining what league to assign. We can all say California shouldn't have done this, but that's the reality so what now?