China,Russia,North Korea and Iran (among others) are watching this and laughing their hindquarters off!
I think Russia has allowed open homosexuals in their military for a while, and sex change surgery is probably too expensive for anyone outside the upper elites to afford. Otherwise, you're probably right.
Sooner or later, someone is going to leak (deliberately or otherwise) a briefing paper or video from someone in Iran or China saying that America no longer needs to be feared because it not only permits but promotes immorality and degeneracy in its military. North Korea probably won't care unless American military degeneracy shows up in the South Korean military, but if Kim Jong-un decided transvestite American soldiers have propaganda value in convincing his people that Americans are awful, this might show up all over North Korea as an example of why Americans are not only bad but also weak.
Whatever high-ranking officers may have done in private, Asian military forces have been known for centuries for strict obedience to orders. That doesn't mean that some very bad things (mass rapes of enemies, for example) didn't happen. Religion and morality have not historically been viewed as “private matters” in Asian society — they've been part and parcel of support for the government — and giving soldiers a moral framework so they do what they're told when their superiors aren't looking is part of that framework. It doesn't make much difference to the government whether its citizens and soldiers follow Mao's “little red book,” Confucian ethics, Buddhism, Shinto emperor worship, or something else, as long as it keeps them in line and doing what they're told.
As for Iran, their radical Islamic fundamentalism makes pretty obvious why they would regard this as degeneracy.
Sooner or later, we're going to see the consequences of people learning the hard way what happens when young soldiers no longer know “what right looks like.” I hope it doesn't happen when a better-disciplined military with a strong faith in the wrong god kicks our rear ends and defeats us in battle.