There are many issues wrapped up in this that I'd like to address. Some from the original post, some in the responses. I'll speak to them though I warn it won't be in any particular order as that I'm sitting in an airport at 6am.
Tournaments are not training. What a student wears while training and what they must wear at a tournament may be vastly different. It depends on how much training they do specifically for the tournament. The issue at hand isn't about what's allowed during training, but at a specific event.
It is not encombent upon either the instructor or the host of the tournament to inform everyone of all of the rules. It is upon them to make the rules easily and readily available. It's the responsibility of the competetor to make sure they are familiar with all of the rules for any individual event.
If the decision was based on the rules, than it was right. If it was based on confusion or worse, biggotry, then it was wrong.
A persons religion is individual and not something that needs to effect every organization. I once had a father approach me about his sons, wanting to enroll them in my class. He explained that because of their religious beliefs, they were not allowed to bow to any man as that such things were reserved for God. I tried to explain to him the meanings behind the bow and help him reconsile it with his belief system. I offered to allow this children to bow in any of the variations with which I am familiar that most made them comfortable. He would not budge on the issue and insisted that his children could not bow to me in any way nor treat me with any respect "undue a mortal man". I thanked him for his interest and denied him a spot in my class for his children. My students bow to me and to each other. That's the way it is, and if his religion doesn't allow it, then they do not get to experience the joys and rewards of martial arts training. That's a sacrifice they must learn to live with, it is not up to me to change my class and traditions to accomidate them.