when my dad was a kid, he had long blonde ringlets. my grandmother would dress him up like a girl all the time just 'cause she thought it would be a shame, when he'd look so sweet in little jumpers and stuff. She took pictures. He was sinfully cute.
He didn't grow up to be gay, on the contrary, he's very hetero type A, and laughs it off when it's mentionned. He has a good sense of humor about himself.
I don't think it's a big deal. The kid's two. What would make it an issue is if this kid's parents raised him in denial of his sex 'cause they wanted a girl, so that's what he'd be, damnit.
Besides, what makes a color masculine or feminine? How many of you guys wore pink Izod shirts in the eighties?
edited to say: my grandmother did this to my dad in the late forties, when male/female roles were very traditional. No one thought anything of it. I guess back then, a kid was just a kid. Sexuality wasn't an issue at such a young age.