I have noticed on this thread that there's some confusion between gender identity and sexual orientation, and I just wanted to clarify that they're different things. Sexual orientation is about who you are attracted to. Gender identity is about who you feel you are.
So for example, I have a friend who is transgendered (born with female "plumbing" but identifies as male and takes male hormones and has a beard, etc). He is attracted to both males and females and is thus a bisexual male. I have another transgendered friend (also female-to-male) who is attracted to males, and is thus a gay male.
There are a number of straight men (non-transgendered, their plumbing "matches" their gender) who like to dress in "female" clothing. This has nothing to do with either their sexual orientation OR their gender, but rather with their clothing preference.
So, a person's clothing preference actually might say nothing either about their gender identity OR their sexual identity.
Just thought I'd throw that out there. :)
As for my own kids, the older one identifies as a boy, the other has made no identification yet. We're poor-ish and lazy-ish and just dress them in the stuff that the relatives buy them, which is mostly ultra traditional boy-looking stuff. Neither one objects or has expressed another preference. If they did, I'd get off my duff and do something about it. :) The odd times I do have money and decide to buy something for my kids, they get a say. That's how my 7-year-old got his pink and purple Barbie bike and his Transformers toys, and how my 5 year old got his Princess birthday pinata and his pop gun. Clothes haven't really seemed to be a big deal around here, except that ds1 insists on warm pants, and ds2 insists on pants that pull up and have no buttons.