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"The character would loose a lot of dignity and credibility"
Whoa, dude , Stranger does what Stranger does, how could gender have any bearing on dignity and credibility ? That`s some rather narrow thinking there.
Your right this is a game, a FANTASY game. Therefor the developers
can ,and should, do anything they want. They are not bound by laws of Reason or Physics, that would make for some dull game play. Keep in mind this is ODDWORLD, not yourworld.
Where the Hell is everyones imaginations, is Volsung the only one that can think outside the box?
[ Boom.... Bang..... falls off soapbox ] 
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The character would be completely unbeleivable and cheesy if he were to suddenly become a female. If they shocked us like this, they would have to follow it up with Steef acting differently then we saw in the previous game.
It would be more than pointless if it was just a change in title, but it would also be inconsistent if they did alter his behavior. It's not that I don't have imagination, it's just that I have common sense. If there was anything that hinted at him being female, I might be more inclined to think differently, but there isn't.