So when did Hotaru know Candy's appearances didn't match the body?
Possibly unrelated: at what point was Hotaru attracted to Candy? Whats Hotaru's sexual preference? That might just answer the previous question.
Hotaru figured it out right about when you did. Hotaru is hetero-flexible but prefers meaty men with a layer of some form of dirt--mechanics, fellow firefighters, yard workers, athletes, etc. Candy doesn't really fit the "dirty aspect" of the bill but after a couple of rough nights nookie is definitely not unwelcome. Clothes on or off, Hotaru does recognize that Candy identifies as female so she'll respect that unless informed otherwise. But I will note, because of things she says in anger a few pages later, that Hotaru does not fully grasp the difference between a trans-woman and a man who enjoys dressing like a woman.
Possibly unrelated: at what point was Hotaru attracted to Candy? Whats Hotaru's sexual preference? That might just answer the previous question.