Well, I have been gaining a lot of perspective on this issue in the last month or so. We now have a 15 year old foster son who is quite the dresser...and I mean nothing nearly as tame as pink hair and piercings (both of which my wife and I, between ourselves, have had plenty of on our own).
Anyway, at first I found my biggest issue was overcoming my inner feelings in relation to how other people react. I think there is a certain part of us, whether we like to admit it or not, that feel our children are like extensions of ourselves, so it can be both painful and embarrassing when our kids have a fashion sense that illicits certain reactions from the rest of the world. If it was just us looking at our kids all day, we probably wouldn't be so disturbed by this issue. I know, for the most part, I couldn't care less what my kids wear at home.
Because I am an incredibly shy person, one of my problems was that my son was drawing tons of attention everywhere we went. I went through a brief period thinking I could never again have this kid come grocery shopping with me. The rude people who stare and the way this kid just changed every room he walked into was more than a little hard for me. I want him to be at least somewhat accepted by at least some people and treated well by the rest of the world, and at the same time I want him to be an individual...and I really think he is the most amazing person as an individual! I have never seen him look more beautiful, have more of a glow, than the times when he's been able to just be himself and dress/present himself the way he is comfortable. The most painful day for me was when a young **adult** male was verbally aggressive toward my son because of the clothing he was wearing/the way he presented himself when we were going into a drugstore.
And then at the same time, I am no longer a pink haired or bald headed (yes, even as recently as two years ago I maintained a shaved head) girl, and frankly, I don't want everyone in the grocery store standing around judging me, my son, and our family. But you know, this is who this kid is in the world. This is my son's expression of himself and the way he wants to be. So rather than negotiating what he wears, I've put my energy into becoming more comfortable and accepting myself with his choices and with the reactions they illicit.
I have, however, drawn a line at safety. Luckily, my son is easily redirected and has been pretty responsive when I am just honest about my safety concerns. Of course, he wants to be able to help evaluate what risks he can take and when safety is and is not important to him, but because he is developmentally not ready for that (he is much younger developmentally than he is biologically), we do that evaluation together. I also have found him more responsive when I can enjoy certain things about how he dresses and presents himself. When we admire his shoes together, he feels a lot more open to my commenting on the way he has applied certain makeup on his face, even if I am only giving a simple suggestion about how to make it look more attractive.