Okay, now that I've posted twice off-topic, I'll address the OP's question!
It all boils down to whether we see children as their own human beings of whom we are guardians during their vulnerable years, or if we see them as our possessions. No surprise, from the responses, MDC'ers see children as autonomous human beings. We all seem to have rules about clothes that pertain to keeping the children safe from weather or physical hazards, and to some degree to learning when a certain type of clothing is appropriate, but that the child can within those bounds express his or her own taste and style.
Like most here, our own house rules are pretty much the clothes must be appropriate to the weather, and you have to wear underpants or shorts (or thick tights) under a skirt. Hey, who am I to give fashion advice? For me, it's a big fashion day if my bandana (worn to cover my gray and usually messy hair) matches my shirt! Besides, who wants the hassle of arguing over clothes, especially if the kid has actually dressed himself? When I tell the kids they aren't allowed to do certain things, I feel there should always be a good explanation for why. And if the best reason for "why can't I wear this?" is "because I think those socks look silly with that dress" then that just isn't a good enough reason.
My mother-in-law is really INTO clothes, and she loves to buy clothes for the kids. My daughter really enjoys the clothes, but when she is given an "outfit" she ends up mixing and matching as she pleases. So it causes some bad feelings: MIL sees DD in some crazy get-up and feels personally rejected because she thinks DD doesn't like her gift because she isn't wearing it the "right" way. DD feels personally rejected because she feels Grammy doesn't like her because Grammy insults the way she dresses.
Last year, Grammy got DD a Halloween-themed outfit: skirt, LS shirt, tights, socks. Well, the following week Grammy came to visit and it was unseasonably warm so she put on the skirt but with a short-sleeved shirt and with the socks but no tights and with white sandals. Grammy and Pappy seemingly could not stop with the rude comments ("did you get dressed in the closet? Are you color-blind?" etc.) even when we told them how rude they were and to STOP IT. Their excuse was, she needs to change or she will get made fun of. Well, YOU are the ONLY ones making fun of her! Then we all went for a walk in the neighborhood and, no lie!, FOUR different people stopped to say how CUTE her outfit looked!! So much for getting made fun of.
Then there's DS with his dresses... and the hilarious thing is, at Easter he went to Grammy's house wearing the complete coordinated outfit that she had bought for DD two years earlier. Hey, at least he was coordinated! Her only comment was, "what will you do when he gets OLDER and still wants to wear a dress?" Umm, let him wear a dress, what difference is it how old he is? Besides, I'm the wrong one to ask about that. I love dudes in dresses. One of my favorite things about Dead shows was all the hot guys wearing a skirt and nothing else (I think they were breaking the underwear rule!;-)). Then there's kilts (yum!) and David Bowie, and then Ashton Kutcher imitating David Bowie on That Seventies Show...I like drag too but that's a different department, guys dressing up to look like a woman. I'm more into guys looking like a guy in a dress/skirt. If that makes any sense. (As David Bowie described it, and this may not be an exact quote but close enough,"no, no, I'm not dressing like a woman. This is a MAN'S dress!")
Grammy seriously needs to get herself a doll to dress up! They always wear the coordinated outfit with all the accessories just the way you like, and they even wear their hair the way you want them to. None of those pesky ideas of their own...