Given the million and one possible genders, I would not have gender on passports at all. Sex, well you could have M/F/prefer not to say, and then some additional 'hidden' info. Sex is relevant for travel and security as regards body searches, and if you get arrested, how will they know where to house you?
Interesting that I don't have such a problem with this person as with the other styles of trans activists, I suppose because they are not seeking to take anything from me, but asking, in effect, for a third space of their own. I can see why other countries that have a cultural history of third gender etc would be okay with X on passports. But don't call it gender, or we'll run out of letters pretty quickly!