I don't know. I rarely taught classes in which students could sit back quietly; most of my courses required participation of various kinds. I realize I am speaking from a single experience, but I can assure you that it was a very bad experience. And when I finally had a private conversation with the student, he went on and on about how he wanted his classmates to treat him "just like anybody else." I couldn't help it. I told him point blank, "ANYBODY ELSE WHO WAS A GUY WOULD NOT BE WEARING A DRESS TO CLASS!" He dropped out shortly thereafter.
If you're telling me that someone who is clearly disruptive shouldn't be in class, I'll agree with that. If you're telling me that the mere fact that someone is wearing clothes that you consider inappropriate, but otherwise acted like any other student in your class, I don't see what the problem is. It sounds like your single experience was negative because this guy was more interested in making a political statement than learning - but there are lots of people like that - whether or not they cross-dress, wear a picture of Che Guevara (or Ronald Reagan for that matter) on their T-shirts, or insist on making statements to the class that have nothing to do with the subject at hand. Cross-dressing alone just doesn't seem like a big deal to me - he's not going to be someone I hang out with after class or work, but who cares - there are lots of people I don't care to hang out iwth for one reason or another. If they can get the job done, I don't care how they look or dress. Again, I realize I'm in the minority here, but maybe it's just that living in the Bay Area and gone to Cal, I've had a lot of opportunities to see people dressed strangely and non-gender appropriately, multiple piercings, rainbow mohawks, and any other weird-ass affectation you can think of. Once you get past the appearance, the only thing that matters is if they are able to get the job done. At Cal, I once partnered with a dyke (her word, not mine) for a linguistics project - we didn't talk politics, or the fact that she wore jeans, flannel and no makeup, but she had a great understanding of the subject material and we were able to get a lot of good work done. Appearances mean very little to me, and if dressing a certain way makes people happy, I really don't care.