It depends. If we're talking about someone's "sex" then I'd say their gentials. If we're talking about their gender then I think it could quite easily mean to be how they personally identify.
If I'm completely honest I am quite happy for people to identify however they like. I have no preference or agenda whatsoever. It's not something I give a huge amount of thought to really.
From this statement, I think you'd agree that gender is a far more important aspect of personal identity than sex is.