We chose not to be embarrassed when she makes comments about other people and I correct her only if she says something offensive However, this rarely happens and maybe because we have a rule in our family: we talk about other persons only if there is something positive to say.
In fact, most of the time I just confirm what she observes (lady with big tummy, red nose, green hair) since she makes factual observations that I cannot dispute.
I agree that some people might be offended (for example to be called big tummy) but I don’t think we should teach kids that they are responsible for other people’ feelings (adults are responsible for managing their own reactions). Starting a conversation with a toddler, about how some people might be uncomfortable to hear comments about their appearance could backfire and could teach kids that indeed there are aspects about our bodies that are not pleasant.

My daughter also asked me only several times whether someone was a man or a woman but I must say it never crossed my mind to tell her that I don’t know. I would find it very disrespectful to lie to her, in order to be sure that we don’t hurt someone’s feelings. She knows that there are 2 genders and that the definition is related to one’s sex, not to mannerisms or other social norms. Our approach around this topic is that there is no need to fix something that is not broken. And since we do not surround her with regressive gender stereotypes, there is no need to confuse her by lying that one could simply be the opposite gender because …feelings. I believe that by trying to bend reality we will just raise a very fragile and incoherent generation, with poor critical thinking skills.