I’m pretty sure the only difference is that a drag queen performs.

and is way more fabulous!
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You are right.
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crossdressers have uglier hair, clothes and makeup
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Well, you’re right, but your friend isn’t exactly wrong.

A Drag Queen is a man who dresses as a parody of a woman as part of a stage performance; a crossdresser is a man who dresses as a woman for whatever reason (there are women who crossdress too, of course).

So a Drag Queen is a crossdresser, but not all crossdressers are Drag Queens.
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You are correct… With the exception that cross-dressing isn’t about sexual gratification. I’m sure this is the purpose of SOME cross-dressers, however, cross-dressing isn’t motive-specific. There are any number of reasons for why people cross-dress.
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Ask Ann Coulter
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A cross dresser may or may not be gay and is more comfortable dressed in clothes of the opposite sex, whether it be dressed as a drag queen or in plain jeans or a housecoat – as long as it is obviously clothes of the opposite sex. A drag queen is a male performer, who may or may not be a cross dresser and may or may not be gay.
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Strictly speaking, a crossdresser (CD) is a person who wears the cloths of someone of the opposite sex. Therefore, strictly speaking, a drag queen is a type of crossdresser. In practice though, the primary difference between a crossdresser and a drag queen is one of motivation.

To really understand the motivation, one should first be clear about the difference between "sex" and "gender." Gender is not the same as sex – they are independent. One’s sex is defined by whether they have a penis or a vagina whereas one’s gender is a sense of self. If you assume that sex and gender are the same, then you end up with silly assertions such as anyone who is sexually attracted to women must be a man.

In short, "sex is between the legs and gender is between the ears."

Both the crossdresser and the drag queen present themselves as being the opposite sex, but the crossdresser does it because of gender reasons whereas the drag queen does not.

A "Drag Queen" is typically someone who dresses for fashion and/or presentation reasons – typically exaggerated for performing on stage. They may do this for career purposes, but also they may do this strictly for fun – and “fun” could feasibly include sex. Some people describe drag queens only as gay men who dressed as women to attract other men, but that is not a fair description in most cases. It is the "look at me" attitude that more readily describes a drag queen, not their sexuality. By the way, a "Drag King" is the woman’s equivalent to a "Drag Queen."

Some crossdressers dress because of some sexual fetish, although a great many do not. Usually, people who identify as a crossdresser do so because they feel that their gender is not the same as their sex – or they feel that they possess a mixed gender or they feel that they are "bi-gendered." If the individual feels so strongly about their gender not matching their bodies that they are compelled to alter their bodies through hormones and/or surgeries, they are “transsexuals.” Loosely stated, a crossdresser desires to *be seen* as a member of the opposite sex whereas a transsexual desires to *be* a member of the opposite sex.

Of course, the topic of gender theory is very complicated and quite fascinating, so the above explanations do not include many of the nuances that a more detailed examination would present.

As a side note, the term "transgendered" is a broad term that includes anyone with gender variant behavior including crossdressers, transsexuals, drag queens, transgenderists, androgynous individuals, and the intersexed. “Transgender” is not a synonym for “transsexual” although people have recently started using “transgender” as a politically correct replacement for “transsexual.”
References :
* Transsexual Woman’s Resources by Anne Lawrence M.D., Ph.D http://www.annelawrence.com
* TS Roadmap http://www.tsroadmap.com
* I Am Transgendered! http://www.iamtransgendered.com
* "Cross Dressing 101" by Dr. Miqqi Alicia Gilbert http://www.yorku.ca/gilbert/tg/tapestry-4.htm#Cross%20Dressing 101
* "Gender Outlaw" By Kate Bornstein ISBN-13: 978-0679757016

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Well, you’re right, but your friend isn’t exactly wrong.

A Drag Queen is a man who dresses as a parody of a woman as part of a stage performance; a crossdresser is a man who dresses as a woman for whatever reason (there are women who crossdress too, of course).

So a Drag Queen is a crossdresser, but not all crossdressers are Drag Queens. This is Diane’s idea and this is absolutely correct.

Basically, Drag Queens perform on stage; They have outlandish make up fit for stage performances. Cross-dressers dress to fit in as whatever their opposite gender is. Also they do not want it known or obvious that they are of the opposite gender they are dressing for.