Some talking points, since presumably you are out to her:
1. Why would it matter whether or not our kids were gay?
2. The term "transvestite" is considered insulting now - don't use it. Use "cross dresser" instead.
3. Most crossdressers - the big majority are heterosexual men. They wear women's clothes sometimes, but they are otherwise normal men. There are gay and bisexual crossdressers, but they aren't the majority.
4. I'm a crossdresser - you realize this, right? I wear women's clothes - surely you've noticed this? I'm not gay - if I were, we probably wouldn't have any kids, because I wouldn't have sex with you. But look over there - children. I'm not gay!
Seriously, though, she is probably worried about where your CDing may lead, or what it may mean, and just not know how to ask about it. Fear of your being gay, and ultimately leaving her, is what is probably driving this. She may well deny that, too.
Really she's worried about the wrong thing. The big relationship ending event she should worry about instead is whether or not you are transsexual and will come to her one day telling her that you are a woman. That probably won't happen either, but it is more likely than you being gay. (Ironically enough though, were you to transition, you'd be a gay woman.)
