I don't know the LessWrong-like answer, so I can only offer you the human, empathic answer.
Based on the phrasing of your question:
whether someone born a male but who identifies as female is indeed female
and the fact that you have posted it to LessWrong, I understand it to be a question about constructing a useful and consistent model of the human condition, rather than about respecting an actual or hypothetical human being. If so, I think you are asking the wrong question.
Your students want to learn from you, but on a more basic level, they want to f...
LessWrong updates the truth to fit its priors.
Them's fightin' words, Random Profound Deep Wisdom Generator!
"Confused about their sexuality" is a particularly uncharitable characterization of a transgender person. Many are not confused, rather absolutely certain. Unless you're using the term "confused" as a polite way of indicating that you believe such a person to be mistaken or delusional, in which case you would be begging the question.
By the way, gender is not the same thing as sexuality.
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