I decided to test the function to generate some realistic mix of ethnicities, with 3 Nubian courtesans with 3 of my Germanic vassals, the children are all of Nubian ethnicity and not mixed.
I'm using the version that doesn't use the other game art packages, but I think that shouldn't interfere with the script though.
Yes I activated the default in the pre-game settings that allows mixes to be made.

Note: I'm using better genetics mod. A second point is that children are mixed only for the Player/playable characters, but for other unplayable characters this does not seem to occur.