I'm all for the "Other" option. I understand that quite a few people are more for eliminating all but essential information from their ID's, such as a picture and a number and little more, but I think it would be far more practical to simply add a third option to one of the data fields rather than trying to overhaul the entire system. The government, at least the one over here in the US, isn't really too keen on sudden change. Not without royally mucking it up, at least.
Either way you do it, even simply providing an "other" option, it would likely spread very slowly on the state level, creating a situation where one state would recognize your gender and others would not. Don't get me wrong, I'd love to see something like this happen, but we'd have to be pretty loud to even be heard on a city/state level, let alone federally. But that's just my crappy country. I can see it working better in other places.