We have a friend with a daughter in 3rd grade. They were going to enroll her in a the 3rd-4th grade level basketball but decided to give her the "gift of time" and enrolled her in the 1st-2nd grade division.
She looked ridiculous being so tall and dominant. Did other little girls complain? No. But don't you see that having an older kid in the group robbed another girl the chance to learn?
I fault the league more than the parents but its the same as redshirting your kid in school.
That's one way to look at it if you're wired that way.
Another way to look at it is the smaller less dominant kids will grow up quicker and soon neutralize the bigger, older and dominant kid (Ask Lebron James and Kobe Bryant. There were wired a little different when playing against much older, bigger and stronger opponents).
The big kid on the block loses out in the long run since she will not play against "good" competition.
As a school and collegiate athlete I always preferred to play with the bigger and older kids during my development days. I made it a point to always age or grade up for higher and more intense athletic competition (It works for academics too). Growing up, I would never dream of playing on teams where I was the oldest and dominant athlete...because it did not improve my game in the log run. Coaches and players understand this phenomenon. Ribbons and tin trophies do not an athlete make. But, parents are happy as clams and have something to brag about.