"Although the shirt looks nice, it's too expensive."
Since there's no "that" in the English, should the Chinese be accepted as correct if it leaves out "那件"?
It is also possible, provided that which shirt it is is already understood in the context.
Duo should come up with clear instructions on the use of the 虽然... 但是 structure. If there are instructions in the lessons please point them out to me as I am only doing strengthening exercises now and have no idea what is in which lesson.
In this question 虽然... comes before the noun/pronoun and 那件衬衫虽然很好看... is marked wrong, but in a previous question 虽然他生病了... is marked wrong and Duo insists on 他虽然生病了... Which is right?
Both order is acceptable, but I would say 那件衬衫虽然很好看... would be preferable. 虽然那件衬衫很好看，但是太贵了！ has a little problem because the noun 衬衫 is nested in the main clause, the correlation to omit it in the subclause is weak; It would actually be better to insert the pronoun 它 in the subclause: 虽然那件衬衫很好看，但是它太贵了！
IMO you can report it if Duo rejects your answer.