Huh, this should only happen if you've hit the Adamanitine but don't have the economy.At least, that's what happened to me. :/
Set the transexual "king" up in a bedroom, and let your dwarves spend some time discussing whether they believe it. Once they decide one way or another then more appropiate accomodation will likely have to be constructed.You can figure out if they decide to have the wet floody kind, or if they are happy having thier leader be a some sort of weird crossgender nudist.