> I too know people whose gender was inconclusive at birth, but that's a different issue entirely.
They serve perfectly to identify the issue at hand. Consider only those people. Before gender reassignment, how do they answer questions like "What sex are you?" or "What gender are you?", particularly if given choice of "Male" or "Female". They can either refuse to answer, or they can answer what they
identify most closely as.
When it comes to the census, they need to carefully think about the question they ask - does it use the word sex, gender or identify, for example?
If person X is male sex and identifies as female, I don't see a problem with that if the question is worded as "How do you identify?". The census writers need to figure out why they're asking the question, then ask the appropriate question(s) to get the answers they want.
Whatever the question, I think answers of "Male", "Female" and "Other" are adequate. If they want more detail, they can ask people who check "Other" to provide it. Here is a list of sexual identities, for example:
http://genderfluidsupport.tumblr.com/gender
No need to put all of those on the census - simply put "Other" and let people fill in what they want under that.