Seems that drivers license is above passport. If on her passport it is written that she is female, what right do they have to demand any additional proofs for identifying her as female or demand to put male on her license. Does the passport mean nothing, just a simple paper without any meaning?..
And as far as I know in most countries medical history is private and should be revealed only in a criminal investigation or for some other serious reason and certainly not for driver's license.
I would get it if there was problem getting the passport (depending on the laws in a country), but this isn't the case. If she is legally women she is has to be treated as such in situations like this.