I don't fully understand the issue here... surely the use of a passport is so others can identify the individual with the most ease possible? Being psychologically male or female wouldn't really have an impact on that, but being physically male or female would. How they identify themselves is going to be mostly irrelevant toward how random strangers identify them, unless the change is physical.
From;
http://www.direct.gov.uk/en/TravelAn...tion/DG_174152
"Changes to your appearance
You must renew your passport if your appearance has changed permanently and significantly, so you can't be identified from the photo in your current passport.
This will apply to you if, since your passport was issued, you have:
•undergone significant facial surgery or trauma
•had numerous/large facial piercings or tattoos"
'Significant facial surgery' might be included in a gender-changing operation. It seems to me that if they've undergone this, they will more physically resemble, in face and body, what the result of the operation was. If they have not undergone this surgery, then they will physically resemble what they are biologically, not psychologically. If one can just identify themselves as the opposite gender, then they may aswell delete the 'gender' input of the passport entirely as it no longer serves any meaningful purpose.