Dee's story reminds me (in a roundabout way) of a couple incidents I have experienced:
I went out about a month ago, and met a friend (C) of a friend (M) -- a cute girl with short hair and a fairly butch fashion sensibility. I got to talking to someone I'd met a few times before, and she noticed this other girl talking to our mutual friend. She asked me, "who's he?" I asked what she meant, and she said, "That guy talking to M?" I just said, "She's C. She's an old friend of M, but I only met her tonight." That solved that nasty little conundrum. (And, yes, I thought it was
just a bit ironic that she got the right pronoun for me, and the wrong one for C.)
More awkward was the time I saw a picture of a friend of mine and his fiancee on his computer screen, and I asked "who's that guy?" -- meaning the fiancee. He said, "that's me." Well, I had gathered that, but I sensed something was wrong, so I just said, "oh." Then he said, "and that's my fiancee." (Whom I hadn't met -- they had been in a long-distance relationship and I never had a chance to see her when she was in town.) That could have been reeeeeeaaaallly awkward. She's actually pretty cute -- it was just something about the expression on her face that, well, made her look like a guy.
The point is, it's EXTREMELY insulting, regardless the circumstance, to mistake a woman for a man. But it happens from time to time, even to some attractive women. I don't ever expect to pass 100% -- but I would like to think that I could reach a point where someone reading me as a man would mean about the same as it would to C or my friends fiancee (now his wife).
I think that's what reminded me about these stories -- Dee's response was pretty much exactly what C's response might have been (if I hadn't been super-suave

and defused the situation). Except it almost certainly wouldn't have been nearly as hurtful to C.
Dee -- I know what you mean about bluriness -- I hate every picture of me that is detailed and in focus. So do most women, which is why Photoshop exists. Take this eggregious example:
http://www.uberpix.net/wp-content/main/2009_08/thanks-to-photoshop.jpg (and, yes, I'd be thrilled to look like the "before" picture). But you do look pretty darn good in that iphone picture. I like what you did to your hair -- I think that makes a big difference.

In your (messed up) avatar, it doesn't have the volume and life. Please don't shave it off! It seems like you're getting better and better with your presentation. Don't give up -- just GTFO of TX!!!!

How I respond: well, for now, I think I look fairly lousy (whatever my friends telling me I'm "beautiful" say), and I don't expect to successfully be read as a woman 100% of the time; I just expect to be respected as a human being. So it doesn't really bother me that much if I'm read. I'm well accustomed to failure, and to me it only means I need to work at it more. I get infinitely more "ma'am's" now than I did presenting as a guy, so I take that to be progress. I don't know a thing in life that's worth doing that you can expect not to fail at many times before you succeed. But, yes, it sure hurts like hell when I fail.