So this is yet another late comment on a podcast that spiraled into being too big for a comment. I re-listened to the year of aliens TAF, mulled some things over... Have a few more things to say now specific to what's said in the podcast.
I don't really agree that games are doing better than most other mediums in the slightest. The biggest and best championed examples of this in games is often simply the fact that there's a cisgendered, white female character in the lead role. TO make no mention of how well handled or addressed that role is in the game itself (See: Metroid Fusion/Other M/FFXII .etc). The game industry seems to have a lot more trouble displaying a thoughtful approach to race (Let's not list off the dozens of terrible black character stereotypes and just use Prototype 2 as an example.) Just being included doesn't exactly give them a leg up on the hundreds of books/films that tackle experiences with things like, say sexual harassment/assault and racism far more seriously. However positive games like Metroid may be held up, there's still no gaming equivalent of say, The Crying Game, or Breakfast on Pluto.
And hey, to stop this post tripling in length, I'm not even going to open the can of worms that is the crap people like Mike Krahulik say and do within the gaming communities.
To bring it around to my own situation, being transgender was something I was only really able to become aware of because it was something that was not often, but tastefully and respectfully explored in TV, books, journalism and more recently there have been films (though it does have the problematic issue of men winning oscars for waxing and putting on make-up while actual trans actors go ignored.).
But as for games? In the last few years there's been a small handful of very small scale indie games like dys4ia, but very little acknowledgment of trans people in mainstream gaming, in fact the west has a trend of actively censoring out trans characters. There's a good few characters such as Poison who were canonically trans in the original Japanese, only to be retconned to be cisgendered women in the US releases. In fact I was rather crushed to find out that one of my FAVOURITE characters in Paper Mario: The Thousand Year Door is in fact MaletoFemale Transgender in Japanese, but in the english version I'd played when I was younger and seeing such things might of genuinely be encouraging and helpful with the dysphoria I felt I had to hide, scrubbing that little detail out actually kind of hurts a lot. Now try if you can to imagine how enlightening the original subplot of Vivian's gender at first rejected but eventually acknowledged by her siblings would of been to someone struggling to hide similar feelings at that point in their life.
The majority of the few examples that exist are primarily Japanese, whether it's as simple as characters in Chrono Trigger feeling confident to defy gender norms in the behavior/appearance, and in fact in several Japanese games characters who are both genderfluid or agender completely such as Leo in Tekken 6. Characters handled as well as Dark Souls' Gwyndolin are scant few. Deadly Premonition is an odd mention since it also has semi-incestuous undertones among other things but at least bravely plants it's foot in the subject matter. Credit where credit is due, the one western game to follow Dark Souls' example would be Saints Row having gender as a spectrum slider rather than a binary option. Well, for the first two games, then it was all about letting you switch between the two whenever, if not to go between any longer.
Though I'll acknowledge Japan has also had some problematic renditions of trans people being homogenized in games such as Sega's Ryu ga Gotoku series wherein you're actively trying to avoid and sometimes fight trans characters, or in Atlus' games such as Persona outing trans people for gags or Catherine. Catherine's treatment of it's MtF trans character is rather problematic mostly because of the fact that she's punished by the same rules as "unfaithful men" simply because she can't have children. Vincent also crosses a line once or twice in his joking references to this and the act of having slept with her is handled as an act of embarrassing Toby, something the game never develops their relationship beyond. The character Kaine in Nier also sparked incredible amounts of people arguing over the vague statements made about her. Pokemon X/Y even has a trans npc, though naturally the english fandom still argues heavily that it must be a mistranslation, when the Japanese actually makes it explicitly clear.
In the end, there's simply nowhere near enough examples in western games of these characters to even begin a discussion about it in anything other than Japanese games. And Japanese cultural quirks in the implications and different views often go unnoticed. And though some games like Depression Quest manage to have pure non-exclusionary cipher characters well, they are few, and almost entirely indie games. Things like this actually give me hope when Nintendo says they want to change the meaning of games from just entertainment to anything that just improves your quality of life. Now you can try to tell me I should just be happy with the scant few examples of it being brought up at all in the west, but really, how many people even know about games that handled these topics perfectly and powerfully like Circuit's Edge or Mainichi?
If you want to see some indie games that actually do handle this though, then I'll link to some that can be played in a single sitting on the web. I'd actually quite like to hear the impressions of people from playing these.