I am wondering if she would have grounds to sue Josh Hokit (and those directly engaged in his performance) for libel, slander, or whatever the appropriate remedy would be. I understand that as a public figure the bar is incredibly high for such a thing, but this is so clearly an open-and-shut case that I would love to see her take it on AND WIN, perhaps demonstrating to the Maggots that there are consequences for their speech hatred.

What would the defamation be? What would the damages be?

Many of the elements of a defamation claim are met - it's a false statement about a specifically identified individual that was published which the maker knew (or should have known) was false. But is it defamatory? What damages would exist if people were to be made (falsely) to believe that Michelle Obama was a man and not a woman? That's the main problem, especially for a liberal Democrat.

For example, it used to be defamatory to falsely accuse someone of being gay. That presumption was based on the idea that it was unavoidably damaging to the person to be labeled as gay - that being gay was something inherently shameful, indecent, or loathsome that the accusation (if believed) would be terrible. But that's no longer the case, because societal attitudes and anti-discrimination laws have made it such that it no longer considered inherently bad to be gay. It's no longer an insult to be called gay, in the eyes of the courts.

Obama would have to walk into court and make the contrary argument - that it's still bad to be called trans. I don't know that would be able to get a court to go along with that. It would vary by state, but even ten years ago the courts were starting to throw such defamation cases out because they refused to participate in prejudice against trans folks. In a case against Richard Simmons (a story falsely accused him of becoming a woman), the court held it could not be defamation:

Simmons, who says not a speck of that was true, filed a libel suit in Los Angeles County Superior Court against the newspaper’s owner, American Media. This week, Judge Gregory Keosian issued a tentative ruling that could strike a major blow for gender equality before the law. He found that whether it’s true or not that Simmons underwent the transition as the Enquirer reported, it’s simply not libelous or defamatory to call someone transgender.

latimes.com - La fi hiltzik simmons transgender story

Again, I don't know offhand whether that approach has spread through the courts - but the argument would be that it's no more defamatory to say Michelle Obama is a man than to say that she was born in 1963 (she wasn't). It's false, but not anything that damages her reputation, because there's nothing wrong with being born in 1963. I don't see Obama going to court to argue otherwise when it comes to being accused of being trans....