I hear hormones make the penis smaller and as limp as a wet noodle.  I see some pictures of tgirls where that is the case and others that look as if they've been on hormones for years but they remain large/ hard.  does anyone have any insight on this.  

how can a female body be achieved while retaining the function of the penis?

As long as you've had no surgery around your p e n i s , everything should work just fine even while on hormones. What you may be seeing is someone in the middle of sexual reassignment surgery who have had their testicles removed. This would definitely effect blood flow. Also if you've ever noticed after you've taken off a cold wet swim suit, it's kind of like a wet noodle. Stay away from the knives and you should be fine.