Pretty sure this was a bug/glitch with Generations although I thought it had been fixed. Are you up patched up to 1.57? Maybe the family tree is so far extended that the game no longer sees them as true blood relatives? Sorry really not sure with EA standards way of playing.
However, if you are using a Mod it might be a setting. If you are not using a Mod and want it fixed then there are Mods over at Nraas that would help prevent relatives from dating so you could put a stop to it.