What have you been reading that you came across that theory? That second-wave-radical-feminism stuff will rot your brain, you know.
Moving on! Let's talk about some distinctions that non-transsexual people often miss.
Although the words sound similar, being transsexual has little to do with a person's sexuality. I find it interestingly peculiar how many people who are entirely accepting and understanding of homosexuality, and seem to have a pretty good handle on the trans stuff as well, become confused when a transsexual person is also gay/lesbian. "Why go to all that bother to be a woman if you're just going to have sex with women anyway?", or something like that. Well, that's not really how it works. Whatever factors determine sexual preference and gender identity in a person aren't linked that way; just like genetic women, most transwomen prefer men but some don't, or like both genders, and the same for transmen in reverse. It's about identity, not sex. (Well, it's kind of about sex in that I'd much rather have sex with female parts than with the male ones I was born with, but that's kind of a different issue.)
Although, again, the words sound similar, transsexual and transvestite are two different things. A transvestite would be a man who gets a sexual kick out of wearing feminine clothing. (Theoretically it could be the reverse, but in practice I've never even heard of a woman with a fetish for wearing male clothing. Since most male clothing in modern Western cultures is only subtly distinguishable from some common types of female clothing, this isn't really surprising.) A transvestite man might or might not affect a female identity while dressed up, but either way he'll go back to his default gender for most of his everyday life. A permanent and irreversible gender change in all aspects of life likely holds little to no appeal, except perhaps as an extreme fantasy element. (Sort of like how someone might fantasize about being raped but not actually want it to happen.) Sometimes "cross-dresser" is used instead of "transvestite" to indicate that the person is assuming a more complete female identity and has reasons more complex than sexual stimulation, although that's frequently still a part of it.
"Transgender" is a word I try not to use. It was originally coined as an alternative term for what I call "transsexual", for reasons such as not causing people to think that the condition is sexuality-related. Since then "transgender" has been picked up by a number of different people and used in very broad ways to try to inclusively cover transsexuals, transvestites, cross-dressers, intersexed people, bigendered people, "genderqueer" people, women who wear pants, and all sorts of other categories. It's my opinion that the term has been diluted into uselessness. Even worse, it suggests that transsexuals and cross-dressers are together in some category apart from everyone else. I am very unfond of that misconception.