Adjunct faculty, unlike full-time faculty, generally have few employment rights. Adjuncts are hired on course-by-course contracts which generally specify that the university is under no obligation to rehire the adjunct. While this individual may indeed have not been rehired because of cross-dressing, it would be very difficult to proove this, since the university does not need to give any reason why he was not rehired.
About two years ago the Chronicle of Higher Education (the trade newspaper for academics) had a very interesting article about trans people in higher education. Although the article focused on TS faculty, it also discussed faculty who use cross-dressing for dramatic effect in the classroom. While many college administrators would be tolerant of this, many other administrators, particularly those in socially conservative institutions, would not be at all amused.