It is unlikely that genitals would be removed during the assimilation process. There is no reason to go through the extra effort to remove them or risk further infections ect. Since the Borg cortical node modifies hormones and libido, it is likely that the genitals will simply lay dormant under the prescribed Borg armor/garments. It is likely that the Borg would only activate the genitalia (likely the male) if it served some utilitarian function, such as the injection of Borg nanoprobes. Seven retained her genitalia through assimilation, as did Locutus. Removal or alteration of genitalia would most likely only occur if the species in question had an unusual reproductive system that somehow prevented assimilation and normal functioning in the collective.
The Borg are also seen incubating infant drones, not all of them were assimilated, if you know what I mean. Seven's familiarity with "borg incubation methods" in Drone suggested that teh Borg to breed new drones.
The Borg don't breed in any way, because if they did that then they wouldn't need to assimilate people. The infants that that the Collective captures are placed in incubation chambers which accelerate their growth before they are assimilated. The reason they are not assimilated as babies is likely because it is more efficient to wait till the captured children age, that it would be too much work for the nanoprobes otherwise.
Universal castration anxieties aside, it may be possible that Locutus and Seven of Nine were affected in such a way as to have them removed. It is not necessarily canon that there is no original Borg sexual and gestational reproduction, in addition to assimilation, although their societal need to assimilate does suggest that there may not be.
Assuming there is, we know that Borg reproduction was advanced from when Riker et al saw implanted infants in incubator-type drawers in ST:TNG "Q Who", to the very alien Borg maturation devices seen in ST:VOY. Obviously, then, the Borg alternative to the normal humanoid gestational process need not require any interpersonal interaction at all, simply the removal and use of gender-diverse DNA-bearing reproductive materials from individuals of possibly former gender.
From the depiction of a multiplicity of Borg drones and other Borg operatives, with the exception of the Borg Queen, there does not seem to be an outward manifestation of humanoid gender in ST:VOY, although this seems to not be the case in ST:TNG, where we saw individuals that facially "looked" female or male. Perhaps the existence of the Borg Queen is a manifestation of a collective memory from the very ancient past wherein the Borg were a matriarchy. This is notwithstanding that we saw in ST:VOY that assimilated Borg retain memories of their (perhaps former) gender identites, which makes sense, since we have seen unaffected gender identities in de-assimilated individuals.
Human gender identity is "preprogrammed" during gestation when the extent of estrogen receptors on the neurons of testosterone-dominant phenotypical and genotypical males and the extent of testosterone receptors on the neurons of estrogen-dominant females is genetically, or perhaps environmentally, determined in utero (this is now understood from brand-new medical research).
Federation reconstructive medical and surgical techniques would be very advanced, so as to remedy this, were this the case, in de-assimilated individuals. Then again, the "aspirational" abdomenal six packs on the Borg in ST:TNG "Descent" seem to suggest that deprivation of gender identities may not occur in assimilation; but, then again, abdomenal six packs can be found on individuals of diverse humanoid gender ProfessorTrek 07:52, August 17, 2011 (UTC)