When the game first came out, I was, what, 10 years old? 11? Tops, 12? I was open to a lot of ideas, since my mind was still easily impressionable. Seeing Sheik though, I instantly knew it was Zelda. Whether or not it was a man or a woman under those bandages/rags did not make him/her any less of an interesting character.
Sheik was a ninja in my eyes, thats all that mattered to me. S/he was cool. However, Sheik wasn't the girl I once knew, the one I was striving to save...S/he was the one saving me it seemed. Her skills, from what I could tell, far surpassed mine as Link. This was why when Zelda got captured by Ganon, that it wasn't a matter of "We can't have a transgender character." but more of a, "We need the princess, we need Wisdom, not another symbol of Courage." Link was being replaced by Sheik in my eyes, thats why, whatever magick was in play, had to be reversed in order for the story to continue.
At the end of it all though, I feel as if Sheik was more of a symbol of Hope/Courage for the people (whomever was left to see this symbol) in Hyrule, while Link was on his hiatus. Whether or not Sheik was a guy or a girl made no difference to the players, or the people of Hyrule. What they needed to see was that there wasn't only one hero to save the world. There wasn't only one person that could stand up against the Evil in the land. You weren't the be all end all hero for once. You were still, only human after all, and Sheik was the same, you both showed each other your mortality.
Thats how I feel about it at least.