First of if you haven't already read the article by Sarah Fox, please do it now. I think it is well written, factually correct and it will provide you with a lot of the background that I'm only going to touch on. I know Sarah (who has a PhD and is a beautiful MtF) and I think it is a great explanation for what goes on in making a baby into either a male or a female.
It's no secret that all babies start out as females and are transitioned into males while in the womb. The process by which this occurs is clearly a designed operation (not a set of random happening.) However, because it is so complex and we have in our world chemicals, stresses and gene defects, it is easy to see that it may not always happen perfectly.
One possible cause for suppression of fetal testosterone activity could be maternal stress. When a person is under stress his/her adrenal glands secrete high levels of another steroid called corticosterone (or hydrocortisone). This hormone, being a steroid, readily crosses the placenta and travels to the fetal brain, where it suppresses the release of the pituitary hormones FSH and LH, resulting in turn in a reduction of testosterone production. The first demonstration of a linkage between maternal stress and incomplete fetal masculinization came from a study examining males born in NAZI Germany during the latter stages of World War II. Because of the crumbling of the Third Reich and the intense bombing operations, mothers were under extreme stress throughout their pregnancies. The records reveal an extraordinarily high incidence of male homosexuality in this population, compared with control populations, thus supporting the maternal stress hypothesis. (Suzi note - I've seen references to the same cause and effect in Russia during the war.)
Homosexuality may or not be very different from transvestism in origins, but I believe that both conditions may have a connection. I further believe that transsexualism is related to these underlying factors. What then determines the outcome of perturbations to one's hormonal environment in utero? I would say that two factors are critical. First, obviously, is the magnitude of the perturbation. Different brain and body systems may require different levels of testosterone in order to be masculinized, and masculinization may not be an all-or-nothing phenomenon. Thus, different testosterone levels may be associated with different magnitudes of masculinization and with different combinations of masculine and feminine development throughout the brain and body.
Perhaps more critical is the timing of the testosterone suppression, as different body systems develop and sexually differentiate at different times throughout fetal development. Testosterone suppression very early in pregnancy may result, for instance, in a failure to masculinize the hypothalamus, which arguably could result in female-patterned sexual preference, hence homosexuality, during adulthood. Testosterone insufficiency at later stages could result in failure to masculinize numerous other brain systems, including perhaps the cerebral cortex very late in development. As a result, the adult's cognitive patterns could be very feminine, although socialized artificially into masculine patterns. This condition could underlie gender identity disorders such as transvestism and transsexuality.
Sarah asked about 50 "T" people about the possibility that their mothers had stressful pregnancies. I continue to ask that of "T" people that I know and there seems to be a high correlation. The overwhelming majority of those people, including myself, can identify conditions that might have caused their mothers to be stressed during pregnancy. Maybe some "T" in a PhD program could make this a thesis topic so it gets a bit more scientific.
Why the late blooming CD/TV/TS? My theory is simple - if a boy gets patterned a bit towards the female side of the spectrum he may be covered by the available testosterone (and maybe a lot of other factors like not fully understanding his "feelings" or the options) until sometime later in life. However, when the testosterone level drops then the female side will come popping into his life with all kinds of consequences. It may be a mid-life crisis that seeks to cover the issue with more sex (and maybe a new, younger partner.) Or it may be "feelings" that can no longer be contained in the closet. Drugs, alcohol, depression and a bunch of other problems have been reported by "T" people that I know, which were "cured" when they finally let their other personalities out of the closet. Some go all the way to transition while others are satisfied at something that is far short of a transition (like just being Suzi occasionally.) The response is a scale not a set of absolutes, as is the underlying condition.
I think the same thing may apply to people who transition young. If they "feel" like girls (or guys) but are in the wrong body, then as the hormone levels change they may quickly get to the point where they are so in the wrong body that it is either death or fix the problem. Talk with enough people who have transitioned and you hear this same story over and over again.
Let me sum up what Sarah has already said. If there are physical causes for being anywhere on the "T" spectrum (and by that I mean other than cleanly at the male/female ends) then it has implications for a lot of things like legal treatment/rights and health insurance coverages. Courts in divorce cases shouldn't hold being a TV/CD/TS against someone if it isn't a "choice" but has a physical basis. Likewise for transsexuals who require HRT, electrolysis and eventually SRS, it should all be covered as if they have any other birth defect.
This is probably more than I know and now you know it also. It may or may not be scientific, but is is based on a lot of stories that seem to fit the pattern. If you read this, the light came on and you found yourself in the picture - welcome to the club. You actually have a lot of company and if you come over to Susan's Chat you will find a lot of nice people who understand and can maybe answer some of your questions. Just tell them that Suzi sent you :~).
If you have any comments, do send me an email. But please don't ask me any deep, technical questions because what you have here is about all I know.