It honestly depends. Loss of muscle mass does occur with estrogen therapy, but someone who starts in their 40's is obviously going to have different results than someone who starts in their teens.
I don't think there's a solution that will please everyone, but I'm pretty sure the "boy = penis, girl = vagina" solution is the least
fair and sustainable one, considering transmen are more common than transwomen and have a higher advantage over cis women than that of transwomen, and cis men will also have an unfair advantage over transwomen.
The most fair solution would probably be to have separate sporting categories, but then you piss off both the "muh special treatment" crowd and the "but we are
real women/men" crowd. And as people start to transition closer and closer to the optimal age, the gap between cis women/men and trans women/men becomes smaller.