In the original game him being a tranny was played as a joke. Even in the Mario manga they mock him for it
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In Japan it's a common trope to have trannies placed in entertainment as a form of humor where they're mocked for believing they're girls. In the original Super Mario Bros 2 for example birdo is a tranny and the games manual mocks him for believing he's a girl
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This would be expanded in the Captain rainbow game on Wii which was never released in the west where birdo gets arrested for using a woman's restroom when he's a guy.
Of course trannies are too dumb to realize the original games are actually mocking them so they take it as a "muh heckin children's video game company supporting my identity!"
What's happened now is some soy localizer changed the text to represent this purple faggot being trans as an empowering thing instead of something done for humor so he can get his good boy points from faggots online. (Probably the only things he can stick his dick into) All the while censoring the rest of the game even more than the original.