People who have a mental problem (their mind is not in synch with their body, that's clearly a mental problem). It's nothing to do with respect. It's about being correct, not playing along with their fantasies and encouraging them to continue.
But yes, there are times when a person is not allowed to use the correct pronouns and would otherwise be forced to play along with the imagined ones. So in those cases, the solution above is the best for everyone.