Hot topic of the day, it seems. Poll on the way. Personally, and this may come as a surprise, I don't think this is a fight worth having and so long as they, or anyone, can measure up to the physical standards and conduct parameters, I see no problem with it.
As a former member of the US military, all I cared about back then was that whomever is beside me in combat is capable of helping me accomplish our mission and surviving the effort.
If a person is capable of meeting the mission requirements, will comply with the UCMJ, and is committed to duty, honor, country, and not some ulterior motive like Manning and others were, then nothing else matters. I couldn't care less who they bump uglies with at night, or what body parts they have under their clothing (with the sole exception as to what actions I may need to take to give them proper medical care in the field). If you can do the job, successfully, and are not a burden to the mission (casualties excluded), then I would be proud to serve with you, and so should anyone else.
Now, one argument that makes a little sense to me is in regard to when should a trans person serve? Either pre or post op? It makes sense to me to have them serve post-op. If a person joins the military pre-op and then decides to take the major step of having the surgeries and hormone treatments, etc. pre-op, then that person may not be able to meet the mission readiness requirements for an extended period of time for what is not a mission or service related medical issue. If a person has non-service related mental medical issues that effect their ability to serve, they are discharged or put into the reserves until the medical issue is resolved. If a person has a non-service related physical medical issue, like heart failure, then they are usually discharged. If a person wants to have trans-surgery then they should go for it, but the military has a duty to the country to maintain it's readiness and a person that cannot maintain that readiness should be removed from active service, at least during the time period that they are not medically capable of maintaining mission readiness. However, once they've completed the transmission, there's no reason at all that I can think of as to why they shouldn't be able to serve.
As for whether the tax payer should pay for the surgeries and other treatments for a pre-op trans, well, on that I don't know and I'm not as supportive. As a fiscal conservative I don't think that any non-service related cost should be born by the services. On the other hand, in many ways, the military pays for non-service related issues to help maintain the members mission readiness, like family/marriage counseling, and other such costs. Like I said, that's the only part I'm not sure about.