I don't think its a big deal, its not like the spa or locker room situation where one's biological sex is the primary criteria. A beauty pageant is about judging women, not a space for biological females necessarily. We're not talking athletics were her having been a man gives her an advantage, pretty much the opposite in the context of a beauty pageant.
And she is pretty hot for an MtF, was expecting some barely passing MtF to have been crowned as a publicity stunt but this seems fine. If I were running a beauty pageant I would allows transwomen but I'd have a rule where their birth sex is kept from the judges so they get judged just like any other participant. If they're not passable at all then they'll lose but if they're passable enough to compete with the ciswomen on an even playing field then good on them, they should have that shot.