This has nothing whatsoever to do with sex, or sexual repression. Muslim women who cover themselves from head to toe are either under instruction from their husbands, or they do it by choice. It is not a requirement of their religion, and since it is completely unnecessary, I wouldn't expect for a moment that all of their acquaintance choose to dress the same way. I wonder if these children will ever be able to fully integrate into the society they've either been brought into, or have been born into? I presume they will have to attend school with children of all races and creeds, so dressing them like this is cruel since it creates an immediate and unnecessary barrier between them and the majority of other children, be they Muslim or not.
Incidentally, pimlico had it right the first time. These parents are not considering the well-being of the child. They are fundamentalists, and their choice of dress, I believe, is designed to say as much about their nationalistic and political loyalties as it says about their religion. Quite simply, they are making a statement.