Ok, I'll talk about stealth first, then about my coworker.
Firstly. I choose stealth because it's simply my right. I see no reason whatsoever for my coworkers to know that I was born with a birth defect. It's inconsequential, and is simply none of their business. Being out at work has a way of creating an unnecessary bias, and an additional stress on me because people may (or indefinitely will) whisper.
I stand up and I'm counted when it matters. I've written letters to my congressman, I go to support groups not because I need them, but to help others, and I stay on these forums mostly to help others, not because I need it very much.
I am quite active and "out" when I need to be. But in my professional life, I do not need to be. I also have some various areas of my personal life where I am not out.
Now back to the original topic on hand. I talked to my manager confidentially. I told him that I do not want her to get in trouble, but I'm not entirely sure of how to approach the situation. I told him how I believe she just seems to be miseducated. He agrees, and he said he was surprised that she said something like that. He seemed thrilled about my reaction of disgust and my acceptance of the transgender employee, so that may have actually scored some points for me.
He basically said what I thought he'd say, that is if she brings it up again, respectfully disagree with her and tell her that you don't think it's alright.
I'll go to HR as a last resort. As far as trying to help the transwoman become more stealth. Well there are 2 things wrong with that. One, I don't think there's much hope for her. Two, that would require outing myself, and even to her I don't want to do that. I've talked and made friends with her though.