I also don't think that it's wrong to question whether parents are correctly interpreting their child's situation as gender dysmorphia rather than something else. Or to question whether non-invasive, non-pharmaceutical counseling that preserves the child's future ability to have children would be a kinder approach.
However, on both counts I think the answers, unfortunately, that it is a real condition, and that those rare parents who support their children in this are not misinterpreting it. I have read through some stories and blogs, and it strikes me that time and again, the parents are brought on board slowly and reluctantly. Even those parents who later become outspoken about it, needed some time to get fully on board.
And if there is a way to counsel someone out of it, it hasn't been discovered yet. And the forms of therapy that have been tried have been terribly damaging. So even though therapy seems on the surface like the kinder, easier route to take, I don't think that experience bears that out.
Which is too bad. It would be nice if there was some way to help a child to gender-identify with their physical sex, without having to face a future filled with so much difficulty.
Oh, and regarding the question of whether a child can even think of such things at a young age: I think most children don't, because they have an easy time identifying with what they are. If you're a boy and love it, and gravitate towards boy things, and easily fit into a boy role in life, then you have no need to think about it. It does seem like those children who have this issue think through these things because it all feels off, and they have to.
It's easy to see why, for example, with the boy who had the botched circumcision and was raised as a girl: it makes perfect sense that he felt like something was wrong, and you can see how that tortured him during his life. The thing is, it seems like transgender children have that same sense, even though the reasons are not so clear. If they are expressing the same things that he did, it seems that the most compassionate response is to respect that.
But it would be terrifying to be the parent and have to decide whether you really are taking the right course. What if you're over-reacting to some other gender issue when you let your child transition? What if you under-react and the child grows up miserable? I doubt that anyone makes those decisions lightly.