I think PE is one subject which should be set by ability so that all pupils can get high quality provision that suits them. Typical lessons should also be revamped so that pupils spend more time actually doing something. I think that all pupils should spend the whole lesson moving with only short breaks. (Currently you stand around most of the time, waiting for your turn.) Also, it is one subject where I would actually give homework - you can easily practise lots of skills at home or in the park.
It is a great subject to teach cooperation AND competition AND discipline.
I think there are gender stereotypes in sport (schools tend to pander to "tribal, competitive" boys and "eager to please, airy-fairy" girls) and the simplest way to circumvent these stereotypes is to just let boys and girls select freely two sports they want to do each term, with perhaps the restriction that they should be able to learn a range of skills from the sports they picked.
The alternative is to make everyone pick one team sport and one individual sport, so that everyone can learn to cooperate and compete (and compete against oneself). I see some value in that as well because I think both are equally important character traits.