Honestly a very interesting situation that real queer people do find themselves in sometimes.
what do you do if you're attracted to a specific gender and then the person you're attracted to turns out to be trans and their gender which played a big part in seeing them as someone to be attracted to to begin with isn't actually what it turned out to be.
It's a tricky situation indeed. On one hand, there is some merit to being against dating a specific gender because you know you are only attracted to that gender. While on the other hand, you really did like that person, who then changed genders, so while the individual's personality likely is the same, who they identify as has changed.
It would be both wrong and insulting to expect them to revert back to their prior gender, just for your own comfort. However, in this case, I think this is entirely her own issue to deal with. But I think she already knows the answer.
She can't accept him as her lover and be happy. But the fact that their love is/was mutual makes it really painful. A lot of self blaming, since she will likely see herself as the one with "the problem", is likely to come from it, even though it isn't really anyone's fault that things worked out like this.
In this situation, my suggestion would always be to just try it. Gender is just one aspect of love. And while usually it does play a pretty significant role, it sometimes isn't everything. If you can just be happy with the other person, then that is what ultimately matters imo. Plus, if things just don't work out, than you can't say you didn't at least try. But if you don't try, then you may always have to live with that tiny bit of regret. You will always wonder if you made the right choice, asking yourself was it the right call to draw that line one-sidedly?
Especially now that Kai confirmed his feelings for her, this literally is their only remaining hurdle. But it is a big one to cross. That being said, I think she could at least try it. Worst case is it doesn't work out, and then they go back to how things were before. Even "fake dating", which seems to be a common theme for the story, could also be a potential route to take. Test the waters before going official.
However, she should never compromise in this situation. If it really isn't something she can accept, then she shouldn't. It isn't like a habit or an interest that is temporary or could change. This is something that will be present every second of every day. Kai will be Kai, a man, every moment of his life. If she can't be comfortable with that, then there is no reason to go any further. Doing so will only hurt the relationship. It will be a subtle, always present discomfort that will slowly rot and corrupt the opinion she has of Kai. This kind of constant stress will only turn into anxiety, frustration, and then possibly anger. And her bottling up or worse, misdirecting those negative feeling onto Kai, for no fault of his own, will only ruin their relationship