The reasoning is faulty, and goes against clear authorial intent.
It also conflicts with exploration of identity - and differing points of view on such - being a core theme.
Doesn't appear very complicated either.
"Niehara" is a shapeshifting monster, and readily embodies both masculine and feminine identities.
"Takahashi" is a giant worm monster, and yet is shown to exclusively favor taking girls as hosts.
Referring to "Niehara" with exclusively masculine terms - and pretending as though gender-neutral pronouns don't exist in English - is just incorrect; it doesn't accurately reflect the character or the narrative.
Just as referring to "Takahashi" with anything but feminine terms would be incorrect; she's clearly and consistently shown her preferences there.
I think you're confusing how Niehara views itself with how the other characters view them. What matters in determining the terms Itou and Takahashi use for Niehara is how
they view Niehara, not how I or you or the author or Niehara themselves views Niehara. I've already explained why I felt it made sense that they are still identifying Monster Niehara with Human Niehara, since they use the exact same words to refer to both. If you disagree with that position, that's fine, it's why I explained it in the translator's note so the reader could have full context for their own interpretations. But claiming your interpretation aligns with "clear authorial intent" is, frankly, baseless.
Of course gender-neutral pronouns exist in English, but having Itou and Takahashi use them would
also be imposing my own interpretation onto the text. It's not like we have reason to believe either of them are well-versed on gender identity, after all. If I didn't have them use he/him pronouns I'd probably have them use it/its pronouns to emphasize Niehara being a monster, but of course that would also carry its own connotations that weren't there in the original text. Again, I don't mind if you think an alternate translation would be superior, but your alternative isn't
objectively correct. Translation is an art, not a science.