What does Buddhism literature and tradition say about transgender folks?

Literature and Tradition are very different. Vastly different. Binary opposites even? In judaism we have the written torah and we have the oral torah. Anything written can be classified as literature. Oral traditions exist as much as literature. But how can you find it? You cant! But you can heart it. Is this not the same of PureDhamma?

Simple answer mind has not gender. Mind might reach enlightenment in any manifestation. Body is just temporary manifestation of mind.

Buddhism is firmly in support of LGBT (and transgender specifically), because shedding of boxed reified identities is shedding of conflict and suffering.

The institutions are all over the place. There are rules that say hermaphrodites (or probably more generally, anyone who doesn't fall into a tidy male/female gender) isn't allowed to ordain.

Then a few hundred years later you get Mahayanaists who specifically say hermaphrodites (& I supposed anyone who doesn't fall into a tidy category) are allowed to become Bodhisattva's, too. Except in Chinese Buddhism, they were still expected to give up any interest in sex.

In one of the Mahayana sutras a celestial Buddha or Bodhisattva transforms Ananda into a woman to make a point about appearances being superficial & differences being artificial. I can't find the source, if I find it I'll come back and add the ref.

And finally, in the old and new traditions, a good Buddhist woman would hope to be reborn as a man, or I suppose a man would fear doing wrong lest he be reborn as a women. This was obvious sexism, but amazing meant people were sexist, but somehow comfortable with the idea of cross-life transsexualism. It sounds progressive, but it is a odd situation where a sexist line of reasoning leads to a progressive conclusion.

Peter Harvey, a Buddhist scholar who focuses fairly heavily on morality in Buddhism, writes at length on "culture war" issues like this, h*m*sexuality, abortion, etc. in the context of the Pali canon. His Introduction to Buddhist Ethics explored issues related to transgendered people, in the chapter "Homosexuality and other forms of 'queerness'. It's worth a look. The full text can be found here - http://www.e-reading.me/bookreader.php/142060/An_Introduction_to_Buddhist_Ethics.pdf/ and it's a good read in general.

Here is an extract:

SEX-CHANGE

Early Buddhist texts refer to the sex of a person as something that can change within one life, as well as between lives. In the Vinaya, there is reference to a monk in whom the sexual characteristics of a woman appeared, and a nun in whom the sexual characteristics of a man appeared. In both cases, the Buddha appears to accept this and simply say that the ex-monk nun should follow the rules of the nuns, and the ex-nun monk should follow the rules of the monks. In commentarial literature, the sex of a person is seen as determined at conception, but as subject to possible change. Causes of sex-change are seen as karmic in nature. The Dhammapada commentary tells of a man instantly turning into a woman when he is sexually attracted to a monk; after marrying and giving birth, she then turns back to a man when she asks the monk’s forgiveness, and goes on to become an Arahat. Sex-change, then, is not seen as limiting spiritual potential.

The Theravada tradition doesn't condemn such people. The essence of Theravadin morality is expressed in the Ambalatthika-Rahulovada Sutta like so:

"What do you think, Rahula: What is a mirror for?"

"For reflection, sir."

"In the same way, Rahula, bodily actions, verbal actions, & mental actions are to be done with repeated reflection.

"Whenever you want to do a bodily action, you should reflect on it: 'This bodily action I want to do — would it lead to self-affliction, to the affliction of others, or to both? Would it be an unskillful bodily action, with painful consequences, painful results?' If, on reflection, you know that it would lead to self-affliction, to the affliction of others, or to both; it would be an unskillful bodily action with painful consequences, painful results, then any bodily action of that sort is absolutely unfit for you to do. But if on reflection you know that it would not cause affliction... it would be a skillful bodily action with pleasant consequences, pleasant results, then any bodily action of that sort is fit for you to do.

"While you are doing a bodily action, you should reflect on it: 'This bodily action I am doing — is it leading to self-affliction, to the affliction of others, or to both? Is it an unskillful bodily action, with painful consequences, painful results?' If, on reflection, you know that it is leading to self-affliction, to the affliction of others, or to both... you should give it up. But if on reflection you know that it is not... you may continue with it.

"Having done a bodily action, you should reflect on it: 'This bodily action I have done — did it lead to self-affliction, to the affliction of others, or to both? Was it an unskillful bodily action, with painful consequences, painful results?' If, on reflection, you know that it led to self-affliction, to the affliction of others, or to both; it was an unskillful bodily action with painful consequences, painful results, then you should confess it, reveal it, lay it open to the Teacher or to a knowledgeable companion in the holy life. Having confessed it... you should exercise restraint in the future. But if on reflection you know that it did not lead to affliction... it was a skillful bodily action with pleasant consequences, pleasant results, then you should stay mentally refreshed & joyful, training day & night in skillful mental qualities.

"Whenever you want to do a verbal action, you should reflect on it: 'This verbal action I want to do — would it lead to self-affliction, to the affliction of others, or to both? Would it be an unskillful verbal action, with painful consequences, painful results?' If, on reflection, you know that it would lead to self-affliction, to the affliction of others, or to both; it would be an unskillful verbal action with painful consequences, painful results, then any verbal action of that sort is absolutely unfit for you to do. But if on reflection you know that it would not cause affliction... it would be a skillful verbal action with pleasant consequences, pleasant results, then any verbal action of that sort is fit for you to do.

"While you are doing a verbal action, you should reflect on it: 'This verbal action I am doing — is it leading to self-affliction, to the affliction of others, or to both? Is it an unskillful verbal action, with painful consequences, painful results?' If, on reflection, you know that it is leading to self-affliction, to the affliction of others, or to both... you should give it up. But if on reflection you know that it is not... you may continue with it.

"Having done a verbal action, you should reflect on it: 'This verbal action I have done — did it lead to self-affliction, to the affliction of others, or to both? Was it an unskillful verbal action, with painful consequences, painful results?' If, on reflection, you know that it led to self-affliction, to the affliction of others, or to both; it was an unskillful verbal action with painful consequences, painful results, then you should confess it, reveal it, lay it open to the Teacher or to a knowledgeable companion in the holy life. Having confessed it... you should exercise restraint in the future. But if on reflection you know that it did not lead to affliction... it was a skillful verbal action with pleasant consequences, pleasant results, then you should stay mentally refreshed & joyful, training day & night in skillful mental qualities.

"Whenever you want to do a mental action, you should reflect on it: 'This mental action I want to do — would it lead to self-affliction, to the affliction of others, or to both? Would it be an unskillful mental action, with painful consequences, painful results?' If, on reflection, you know that it would lead to self-affliction, to the affliction of others, or to both; it would be an unskillful mental action with painful consequences, painful results, then any mental action of that sort is absolutely unfit for you to do. But if on reflection you know that it would not cause affliction... it would be a skillful mental action with pleasant consequences, pleasant results, then any mental action of that sort is fit for you to do.

"While you are doing a mental action, you should reflect on it: 'This mental action I am doing — is it leading to self-affliction, to the affliction of others, or to both? Is it an unskillful mental action, with painful consequences, painful results?' If, on reflection, you know that it is leading to self-affliction, to the affliction of others, or to both... you should give it up. But if on reflection you know that it is not... you may continue with it.

"Having done a mental action, you should reflect on it: 'This mental action I have done — did it lead to self-affliction, to the affliction of others, or to both? Was it an unskillful mental action, with painful consequences, painful results?' If, on reflection, you know that it led to self-affliction, to the affliction of others, or to both; it was an unskillful mental action with painful consequences, painful results, then you should feel distressed, ashamed, & disgusted with it. Feeling distressed, ashamed, & disgusted with it, you should exercise restraint in the future. But if on reflection you know that it did not lead to affliction... it was a skillful mental action with pleasant consequences, pleasant results, then you should stay mentally refreshed & joyful, training day & night in skillful mental qualities.

http://www.accesstoinsight.org/tipitaka/mn/mn.061.than.html

If something does not cause harm to one's self or to others, then from a Theravadin perspective it is morally acceptable. In my opinion the teachings of the Buddha offer many sexual minorities (such as lesbians, gays, bisexuals, and transgendered people) the clear moral teachings that affirms that they are not to be condemned.

Sexuality in general is technically classified as being unwholesome or unskillful, but the Theravada school makes a distinction between acts that are unwholesome (anything based on attachment at all, so this also includes enjoying entertainment, food, etc...) and acts that are evil. Sexuality that is within the third precept (not using sex in ways that breaks up relationships or sexual taking advantage of people etc...) is understood as being acceptable for a layperson. Although this Sutta talks about abandoning all unwholesome states of mind, it was aimed at the Ven. Rahula who was a novice monk at the time. For laypeople one only must abandon evil actions.

The Bodhisattva Avalokitesvara can be seen as having an indeterminate gender. Quoting from this website

One interpretation of this development contends that the bodhisattva is neither male or female but has transcended sexual distinctions [...] the flowing drapery and soft contours of the body seen in statues and paintings have been intentionally combined with a visible moustache to emphasize the absence of sexual identity.

So the issue of gender can take on a more flexible interpretation with some more Mahayana aspects of Buddhism