They are allowed to compete in the Olympics; transsexuals must wait 2 years after sex-reassignment surgery to compete:
CNN.com - Transsexual athletes OK for Athens - May 18, 2004
The IOC does chromosomal testing, but supposedly they are only testing suspect athletes at the Beijing Games. They used to test all of the female athletes. The problem with this is that chromosomal abnormalities happen even in women who are, for all appearances, normal women.
A Lab Is Set to Test the Gender of Some Female Athletes - NYTimes.com
And also, could we change the thread title to "transsexual athletes" instead of "tranny athletes"? The term tranny in the context of the thread title is unclear.