I personally don't see wrong with it, he is way too young to have a 'sexual' identity. Sure it can be argued that if he is raised like this for years yet he will then have a preference to 'pink n pretty' things (quoting a friend who mentioned this earlier), but to me that isn't an argument to either way.
Let people develop and advance as they will, society needs to have many of its 'ideal' BS ways broken, and the fact that people are shouting and screaming over a 5 year old boy having pink toenails just goes to show that it is too obsessed with the 'macho no emotion' boy. It is just an extension as those reacting now believe that kid and ones who see it will grow up with those preferences.
It ain't my thing, but let people pick for themselves and don't look down on guys who dress 'girly' and view that as bad, because last time I checked, when a woman dresses 'manly' we don't point, shout n scoff at the idea. Double standards and equality.