I think the point of his confusion is why combine gender minorities and sexual minorities. Part of what I think makes it fit (though this doesn't apply to the inclusion of intersex) is that they tend to be unrecognized minorities that are not united by a belief or central ideology, just that their defining characteristics are, as just mentioned, unrecognized by many. And that is the source of a lot of discrimination. At least, that's how I see the relation is. Intersex, I suppose, it more recently grouped in there because they face similar types of discrimination (at least, I assume so, admittedly I haven't looked much into the topic) and so they join in. There's also, as others mentioned, the fact that grouping all these demographics together gives much more strength to activism by rallying more people.
It definitely seems like a better acronym. Keeping it LGBTQI... will just lead to another, previously unaccounted for, group going "Hey! What about me!" and causing a commotion, because they'll feel out of place in the community. It would be like if the USA was "The United States of Alabama Alaska... "; each time you ratify a new state, you would have to go through the process of changing the whole name and getting people to recognize it as the "official" name. Also, to include all identities under that naming system would just be silly, because you'd end up having a 26+ character name to make sure that every person in it is accounted for. By making a blanket term, a group could say "We're GSM", just like a person from New York says "We're from the USA." It's just a better system, because it makes sure there isn't a group that is not accounted for.
It's definitely a better acronym in that it doesn't easily make people come to any kind of conclusion that some group included doesn't match the rest and I think it works better because it makes it clear gender and sexuality rights are of equal priority. I was just trying to explain why the inclusion of transgender makes sense in the traditional "LGBT" acronym that some people get confused about. I still don't think GSM makes it obvious WHY they work together for some people, but it makes people less likely to see it as a different kind of struggle.