The NPCs in-game refer to Sheik as male to prevent it from being less obvious that Sheik is, in fact, Zelda. Not to mention, few of the NPCs are actually aware that Sheik is Zelda. There are so many clues that hint at Sheik being female in the dialogue.
Take the Ice Cavern where you learn the Serenade of Water; Sheik says, "Young love will become deep affection." Especially because that was contained in a segment of just a few profound-sounding sentences, outside the segment of general directions on where to go, that definitely is meant to be a hint. Head about 3:30 into the video and watch onwards.
http://www.youtube.com/watch?v=FpQQm10cpo4
There are many, many more -- at least one hint per meeting with Sheik. After the end of the Water Temple, Ruto notes that Zelda is alive, and she pretty much threatens Link because he is/was fond of Zelda.
The most important thing is that the narrative and romantic subplot of the entire game won't work well unless Sheik is female. Had Sheik been male, none of these little "hints" would be brought up anywhere in the game. Also, why would Sheik be following Link so closely and know him so well if Sheik were a different, male character? The whole point of the hidden identity is that people are naturally attracted to what they can't see or don't know; this goes for people as well. The cinematic camera angles, the romantic-sounding music associated with Sheik and Zelda -- they are all subtle clues that there is definitely chemistry between Sheik and Link.
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