Martialarts,
The key in that regulation you quote is, "on the school team", they cannot be "on the school" team if they have not joined ie. started practicing with the school team. Thus they are not in violation of the regulation in question. Once they start practicing with the middle school they are not allowed outside competition until completion of the middle school season. I assure you this is not simply one school that takes advantage of this allowance but rather many in our area of the state.