obviously the kids purpose for doing it is 100% of it. Did he do it to play the villain and show how they exist in history? Like dressing up as Che or Mao? That should be fine. If he's doing it to celebrate the Klan, well that's clearly a problem.
Yeah, my best friend in 4th grade dressed up as Mao for a history project. Granted, dressing up as the KKK has a much more personal symbolism than Mao for most Americans, so it's probably a good idea to run it by your classmates and school officials first.