I might be remembering wrong but I don't believe Momo's current body is a different gender from their original one if I remember the quest right.
The read I got off of his dialogue in his debut quest is that he's been experimenting on himself for hundreds of years with various forms of Lens magic to find "ultimate cuteness" and this body/look is what he settled on.
Either way, I just find the whole portrayal really weird. Maybe I need to read B'baba's intel on Momo for more context but my initial response is "why are we still doing this joke in 2024?"
I never really felt they were making fun of Momo ever. There was some communication error initially, and when it was established Momo was male, Nowa said "Oh" and moved on. Maybe I just never looked too much into it.
This is the one thing the scene has going for it - Nowa doesn't dwell on it or go "HUH?????" or make it into a big to-do. He just nods and rolls with it. That part I'm fine with.