I think this speaks very well of your niece, to overlook the remarkably odd nature of the partner, or not to notice it much. It shows depth of charcter, I think.

People often see their own gender in others, and thus have difficulty appreciating that the 'other' can have an entirely different gender identity (internally and/or externally).

I'm rather old fashioned about all of it, and have for many years seen non-heterosexual people as remarkably selfish or even narcissistic. I appreciate that I am wrong to think this, but that's often the impression I've gotten when meeting these people, even if I appreciate that they are genuine in their beliefs (or seem to be) about themselves. There is an old Quaker saying that: it's the not me in thee that makes thee attracive to me. And in Hinduism, Shiva/Parvati, linga/yoni, Vishnu/Laxmi, and Krishna/Radha are so often shown as pairs because of the way in which the universe is balanced by their bonds. The fact that Christ supposedly never married is also rather strange, for the traditions of his time. Combine this with the Abrahamic removal of God from earth and there is a disconnection of humanity and gender roles from their traditional bonds. Not to channel Joseph Campbell here, but all of this is to make a point that the Western focus on individualism has led to this tolerance of gender manipulation, though I know that's a crude leap across 2600 years of Judeo-Christian developments, without considering the Islamic World (Abrahamic) and the far East. And as shown in Erich Auerbach's 'Mimesis', approaches to the human condition have focused more often on the inner self, gradually from 600 BCE to 1946. I suppose my main point is that I see increasing narcissism as one aspect of the rise in interest in gender manipulation and the spread of non-heterosexuality, but regardless of this, the Western focus on individuality is the main reason for the so-called "rise of the West", science, freedom of speech, democracy, a free press, better quality of life, capitalism (though not late stage), greater wealth, social programs, and other progressive matters. So - historically speaking - it would be disingenuous of me to ask someone not to be what they consider themselves to be. I'm not sure any of this makes sense.