Ash wasn't too bothered by having met more than one Lugia in his life(unless my memory serves me wrong), why more than one Lati?
The technical explanation is that they distort the light around them using their feathers to project an image. However, this would fail to produce the effects we saw in the movie for several reasons:
1. The parts of Latias (because do we know for sure that Latios can transform into a human? He's a bit too big for that, I think) that extend outside of her human form (i.e. her wings, maybe her head, that bulgy thing she has for a torso, would all be sticking out, because she does get considerably smaller when she transforms) would still be visible.
2. As it's only a visual change, she wouldn't be able act like a real human, i.e. sit down on chairs, grab a piece of paper (I still don't get how they hold anything in those paws), kiss Ash (because we all know it was Latias, not Bianca) without having to stick her head up in the air(because their mouths are on the underside of their heads), etc.
3. It doesn't explain those blue orb thingys that appear when she transforms.
So I just explain it as magic. It's simpler.