Both my kids (currently 19 and 16) know that I'm bisexual. They didn't freak, and I think the singing duo t.A.T.u. had something to do with it. We were listening to their CD while on a road trip when I told them.
Having only recently come to grips with being an androgyne, I haven't told them yet. Likewise, they know nothing of my cross-dressing. The main reason is that I'm not really in any kind of transition...yet. I'll have to wait and see.
How old are your kids? If they're old enough, and/or mature enough, I'd recommend "Priscilla, Queen of the Desert." It might seem an odd way to introduce CD and TG/TS issues to kids, but my kids love the movie. And, it seemed to take the concepts and put them into a family setting, especially towards the end of the movie.
Do you know how they feel about gender issues?
How far into your transition are you?