The tradition's public rupture came over who counts as a woman.
At the PantheaCon convention in San Jose in February 2011, Budapest led a ritual restricted to what the announcement called genetic women, excluding trans women along with men. The restriction had been the practice of her line for years; doing it at the largest pagan gathering in the United States made it a public argument, and the argument ran on through the following year's convention and across the wider community.
The positions are not hard to state. Budapest's line holds that its rites are built on a shared bodily experience, and that the space is meaningless if it is not restricted to those who have it. The opposing position is that this defines womanhood by anatomy, that trans women are women, and that a religion organised around the exclusion of an already vulnerable minority is doing something other than what it says. The dispute has not been settled and probably will not be, because the two sides disagree about what the ritual is for.
What should be said clearly is that not all Dianic Wicca holds the exclusionary position. The lines descending from Morgan McFarland differ from Budapest's, some admit men, and several Dianic groups have explicitly welcomed trans women. Treating the whole tradition as identical with one teacher's position is a common error and an unfair one.
Budapest herself was arrested in Los Angeles in 1975 for reading tarot under a municipal fortune-telling ordinance. The conviction was overturned after years of appeals, when the state supreme court found the ordinance unconstitutional.