If being a girl is what makes him happy, be a friend and support him. It's understandable you wouldn't want to lose the boy you know, but he may not be happy as a male and may truly want to be a female. All you can do is support him. If you don't think you can be with him, then that's that. It's hard for people to stay with their partners when they come out with things like this and if you feel you can't be his girlfriend anymore, then that's probably for the best. But stand by him as a friend and support him to do what makes him happy.
But I also agree with Robin, you should sit him down and ask him seriously if he really, truly wants to be a girl and go from there.
I mean, I have guy friends who always say stuff like that, it leaves you speechless, and then they crack up. But if he's serious, you really need to sit down and talk about it with him.