I'm thinking that part of this difference of opinion could also be that we know our children's personalities. For children who are drawn to things that we say 'no' to, then saying no could indeed increase the curiosity. Other children are content with no and a reasonable explanation. But let me put this in a different context. If your child wanted to smoke or drink would you let them try it just so the mystique would be gone? If you establish the pattern of letting them do something early in life just to 'kill the curiosity', how will you deal with that established pattern of behavior when they get older and the things they want to try are more extreme than nail polish? If no and an explanation aren't enough at 4, 5 or 6...how will it be enough at 13, 14 or 15?
I realize that nail polish, alone, probably isn't enough to cause gender crisis - but, it's the pattern it establishes which can lead to problems. The phrase "a journey of a thousand miles begins with but a single step" comes readily to mind. When you let that first step happen, how are you going to change that path later should they continue to follow it? As parents we are charged with training our children up in the ways of the Lord. The single most effective tool we have for that is consistency. If we use one set of guidelines when they are small then try to change those when they are older, we are doing a major disservice to our parenting obligation and we are setting the stage for why our children feel they shouldn't have to listen to us. Saying nail polish is ok because it 'gets it out of their system' but having a cigarette isn't ok for that same reason - well that sets a double standard. Believe me, I've got the age range of kids, I KNOW how well 13 year olds remember those kinds of things and will try to use them to justify what they want. The trade off just isn't worth it to me; I'd rather deal with a whiney 4 year old over nail polish now than a beligerant 13 year old who can't understand why it was ok at 4 but not ok at 13.