I guess to answer the most poignant things in your post.
It varies for every trans* individual, but no, dressing, acting and even being treated like the gender you identify as simply isn't enough in some cases. Once again can't speak for every trans person but there are just things about my body physically, that unnerved me and make me depressed , and these things as they stand now can only be resolved through hormones and surgery. I've tried simply dressing up in women's clothing and much like Lexi, it just increased my dysphoria since my body was still not the way I desired .Think of it like many other aspects of health involving hormonal imbalances or body abnormalities where the only solutions are to correct the hormone levels or abnormality. In some cases these things are enough to cause severe self esteem issues, social anxiety and in some cases drive individuals to suicide.
I'd also say what "being yourself" entails is subjective, for you having genitals , hormone levels and other characteristics that match your gender identity is something that probably doesn't apply to "being yourself", since it's something you probably take as a given . But I'd implore you to think "why do I think these things aren't a part of "being yourself". For me having a penis isn't any more "me" than "acting, dressing and talking" like a guy currently is, nor being hopped up on male hormones. For me the difference between having a penis and having a vagina, even one that cant facilitate reproduction, is far from cosmetic in feeling and is very much impactful on my mental well being compared to being depressed and dare I say even suicidal for the rest of my life.
In regards to you friend, I would just say please start calling him by the pronouns he prefers. Sorry to ask more questions when you came here for answers but why can't you see your friend as male, and more importantly, why does this matter more than not making them upset?
Far as I see it, the happiness of your friend should come before a few words that probably doesn't mean a lot to you, but what I must tell you means A LOT to them.
uh I guess to tldr:
1)"Isn't dressing, acting and talking like the gender they identify as enough?" In many cases no, much like a depressed person couldn't get by simply by "trying to be happy" medical intervention is needed.
2) "Being yourself" does not exclude the need for such things as hormones and surgery, what is defined as "myself" is up to every individual person and for some includes the state of their genitals or body shape or hormone levels.
3) While you may not be able to "see" someone as the gender they say they are, really what harm comes from respecting their preference?
Finally since I don't feel I did a good job of really answering you or helping to clarify anything , read the op of this thread:
http://www.neogaf.com/forum/showthread.php?t=491958 .