This is up to the players. They could be magically and completely healed of their health problems as soon as they enter the game, they could still have them but not in their magical form, they could still have them and their strength and endurance in their magical form could be reduced... Whatever you, personally, feel would be the most fun to play around with is fine by us!

However, your character should still be able to function to some extent in their magical form. For example, if they're wheelchair-bound normally they won't be when they're transformed.