The court ruling sounds reasonable. Cis women might not be comfortable around trans women in female only spaces and saying "just get over it" isn't really progressive. Denial that there is a genuine conflict of interest here is also counterproductive.
We also need to recognize that the median voter is supportive of trans rights in general but tends not to be on specific issues. Trying to brute force it with government policy will likely have the opposite effect.
The concern is if this ends up extending the ability to exclude trans women from women-only spaces to places which are "generally" gender segregated like bathrooms or team sports. If we end up without measures that protect the right of trans women to participate in society then that would be unacceptable.