I think the sexuality of Kusanagi works on multiple levels. She is a full cyborg, and she could present however she wishes. She explicitly uses her appearance toward social engineering ends in the
Stand Alone Complex series. I’m not very familiar with the manga, from what I do remember, Kusanagi is bisexual and is likely “fully functional” sexually, but her body as depicted isn’t really her own, as she relies upon regular maintenance provided Section 9.
I view the portrayal of Kusanagi as being steeped in aspects of the male gaze in a metatextual way. Japanese society has a high emphasis on traditional beauty standards, and the artists depicting her as a character use her beauty as a foil against the audience, by contrasting her beauty with her strength, and by subverting the desires of the audience by drawing our attention to her humanity by alienation through destroying her body at multiple points in the series. Her desire to protect her comrades at the cost of her body shows us how she is willing to sacrifice her femininity, being forced to regress to a childlike body.
The series have a lot of fan service, but I believe that it’s intentional so that the audience is forced to confront their own biases and stereotypes about women and about cyborgs/robots. The cyborg nature of her body as it is destroyed reads to me as a visual metaphor for the Madonna/whore double standard women are subject to society.
I guess I don’t disagree with your view, so much as I think that how she is depicted works on multiple levels in-universe and with respect to the viewer, and said depictions serve multiple functions in the text.