I know that most crossdressers are not gay, and there are a lot of loaded terms used in this subject, so I'll refer to crossdressing, transexuality, and homosexuality collectively as gender identity disorders. I know a lot of people will probably insist that they aren't disorders, but I'm talking from a biological perspective about conditions that cause a person not to fit well into a typical male or typical female category. Just keep that in mind.
I wrote a paper for a biology class on this subject, it's really fascinating. A lot of people think being a crossdresser, or a transexual, or a homosexual is a choice, but I'd venture a guess that very few here believe that. Most people are quite certain they were born that way. The only trouble is, if there was a gay gene or a transexual gene, it'd be weeded out of society in a few generations, since gays and transexuals do not tend to reproduce as much as their counterparts.
Since it does not make sense for it to be genetic, and because most people with gender identity disorders have felt they were that way as long as they could remember, whatever causes these conditions must take place between conception and early childhood. One of the best theories I've heard is that these conditions are caused by hormones transferred between the pregnant mother and fetus. Here is an article written on this subject.
http://www.viewzone.com/homosexual.html
The article refers mostly to homosexuality, but other papers I've read have stated that it can also apply to transexuals and crossdressers. Basically, the gender of a child's mind is assigned before he or she is born. Boys and girls are born having the mental characteristics of their sex already.
The only thing is, sometimes the brain isn't assigned to the right gender. Also, since the brain is actually made up of many different parts, sometimes some parts will become assigned to one gender and some parts to the other. For instance, the hypothalamus seems to control sexual attraction. If it ends up set to the opposite gender, but none of the other parts of the brain are, the child will probably end up being gay, but otherwise comfortable with his or her gender. Although we do not have anywhere near a complete understanding of the brain, it is likely that there is a part that controls self-perception. If this got switched to the opposite sex, the child would end up believing himself to be a member of the opposite sex, despite being told otherwise.
Imagine the brain, with all the regions colored either blue or pink depending on what gender they're set at. Some regions aren't very strongly affected by sex, like the occipital lobe. (which controls vision) Imagine these as being much lighter in color. Some regions are strongly affected by sex, like the hypothalamus. Imagine these regions as darker. On your typical genetic male, the brain would be mostly blue, with perhaps some purple splotches here and there. Same goes for a typical genetic female, but with the reverse. A crossdresser would probably have a lot more purple regions in his brain, and some that are almost pink. A tomboy would probably have a lot of purple too, and some almost blue. A transexual would be more the opposite color than their own genetic color.
The point I'm trying to illustrate is that gender is really complicated. It's not simply one or the other in the brain. Some people think of it as a spectrum, but that's wrong too. Really, it's a whole bunch of spectrums, each controlling a different aspect of a person's personality. Also, gender identity is not genetic, but it is something you are born with. What is genetic is how a person's brain responds to these hormones. Some parts of certain people's brains are more likely to switch to the opposite gender when exposed to these hormones.
In the link I posted, it is shown that the male offspring of stressed mothers are more likely to exhibit characteristics of the opposite sex. It is very likely that this is the case in people too. It could explain the large number of British crossdressers and transexuals born around world war II. The paper hypothesizes that this condition is advantageous to a species, since under periods of stress, animals are born which don't know how to reproduce. Sometimes it's necessary to have a lower population in order for a species to thrive, just ask any forester.
Of course, that isn't really the case in people. A lot of homosexuals do have kids, and a lot of heterosexuals do not. But then, our species isn't purely an instinct-driven one like our ancient ancestors.
So a few things to consider here. It allows us to understand ourselves. It also allows us to answer questions, like, does that mean my kids will be like me? I'd be interested in hearing anyone's thoughts on this matter. Also, on a final note, were any of your mothers under a lot of stress while they were pregnant with you?