I found the original flag rearrangement mildly funny, seeing it as pointing out an accidental design fail - a bit like the 2012 Olympic "Simpson" images. Once seen hard to forget.
DH saw it as mildly offensive.
OK, move on.
This has taken it to a whole different level. Yes the police have been set up, but those same police, and it was clearly an organised operation, who fell for this might equally pick on some soap seller in Salisbury, or some mother somewhere who had posted something angular on twitter. Where is the bar which takes something from offensive but legal, to illegal.
FWIW I find the trans flag both ugly and anxiety provoking. It is effectively saying we have the power that allows us to trample on your rights, because you, as a woman, don't count.