Yes, it was funny, but it wasn't supposed to make fun of transgender people. People have complained about Link's reaction to Spoiler-chan's gender reveal, saying there was "a horrified look on his face", when that same reaction is later used again in a moment where he is surprised about something, rather than totally horrified.
Not to mention that Link has always been very dramatic, which is necessary, because he is silent and doesn't show his emotions another way, making this "horrified look on his face" even less harsh than some people make it out to be.
Also, has it never occurred to anyone that comparing men in dresses to trans women is... a little transphobic?