a gov't agency rather than courts or legislatures as you describe, and that "guidance" coming with a not so veiled threat of withholding Fed dollars for those that don't comply with what this bureaucracy's ruling, is two fold.

1) This took it well beyond bathrooms to include all gender segregated areas such as locker rooms/showers and even dorm rooms (I would have to think, although I don't believe that was specifically mentioned).

2) They clearly said you could have no litmus test to determine what qualifies as "transgender", thus opening wide the door the opponents fear - that some guy could claim he identifies as a female just because he "feels" like it that day.

I think they way overstepped their bounds, but not because of the typical gov't overreach meme, but rather because they are mandating something the vast majority will not approve of. They should've stopped at public restrooms IMO. If the activists want to then challenge that to include showers/locker rooms and dorms, they could still try and do so via the courts or legislatures.