My argument has been that you are categorizing all transgender people under a single, broad umbrella, that you should instead look at them as individuals and judge them based on their own merits. Some transgender people are perfectly capable. Some are not.
Rather than using our opinions that come with personal bias, we should make decisions based on facts, data, and metrics. There are multiple case studies as well as a decade of history that agree with the above assertion.
And if a diabetic can function normally and be successful in the military given the proper circumstances and medications, I have no issue with them serving. Maybe they make great janitors but no dieticians., for example.