Your friend is a transgender woman who is into cisgender women sexually. Basically, lesbian born in the wrong body.
What should you do? Just accept them and move on. If they make a big deal out of it, don't treat them any differently. They'll realize soon enough, like the rest of the world, that their sexuality or gender does not matter and we are all equals, even if we do suck a dick quite literally.
That being said, don't do anything that would piss them off. Use female pronouns, their preferred name, and you'll still have your bro. Being transgender doesn't mean anything will change other than the shell of the human around them. And if something does change emotionally and they become distant - well, maybe they're just a piece of shit and gender nor sexuality has nothing to do with how much of a piece of shit they are.
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