Isn't it a good thing for people to blur gender norms? I remember the rugby team having a drag social when I was a fresher, the more "feminine" lasses in the dorm had a laugh helping them dress up. The best bit was one of them "passed" pretty well to drunk men and got chatted up by a big creepy dude who wasn't taking "no" for an answer, and he and his mates suddenly got a lot more perspective on how their own behaviour came across to women. And just how arduous and how big a waste of time makeup and hairstyling is, so they didn't expect their girlfriends to do it so much after that. I used to have a laugh dressing up as a drag king sometimes too, and taking the piss out of traditional masculinity, lolloping around the place and scratching my armpits, it's harmless fun and if done right, can undermine and mock gender stereotypes rather than mocking women or men.
In the later years of my degree they had some system where you could wear a wristband to show you were in drag rather than expecting to actually be perceived as the opposite sex, which seemed a bit redundant given how OTT drag is, but I guess it kept everyone happy. Banning it altogether would imply that it really ISN'T that obvious that it's a silly drag performance (I would've thought a party wig or a beard made of fake fur would've been obvious but apparently not), and it gets to the point where you're expecting people to dress according to their assigned gender norms or else "identify as" something different. Which puts us right back to the start of imposing gender norms on people based on their sex.
Particularly interesting to me is that the rugby club also regularly had socials where they'd dress up as "homeless people", but that was never condemned as classist, even though it was largely wealthy kids straight out of public school taking part in those ones.