The analogy for this used in Chassidus is from a fetus: During the time of conception, the gender of the fetus is not yet determined. Only after the first stage of gestation in the womb, the gender of the fetus established. That is why at the very beginning of pregnancy, one may pray for the baby to be a specific gender, but after 40 days into the pregnancy, it isn't appropriate. The gender is already established by then and should not be changed. The analogy is that in this physical world, there are always open possibilities for change, but in the spiritual World to Come, everything is already established, and the soul can't change itself. (See Likutay Torah on Parshas Pinchus, in the first maamar.)
Note: The concept that on a certain level, good and bad seem equal to Hashem is not to be understood literally. Hashem Himself decided that He hates bad deeds and loves good deeds, and this is the ultimate truth. However, Hashem created a level where the difference between bad and good is not noticeable due to a revelation of Hashem's greatness that makes everything in all the worlds seem equal compared to it. The purpose of this level is 1) there must be a level on which unholiness is possible so we can choose to serve Hashem of our own free will, 2) there must be a level where good and bad are interchangeable, so we can change from bad deeds to good deeds (and bad thoughts and feelings to good ones). This level that Hashem created is expressed mainly in this physical world.
