Speaking from (relatively...) personal experience I would be inclined to say that yes, interracial relationships were not uncommon in the colonies albeit probably not to the degree or in the ways you were thinking of. Most of these actually resembled more a sort of concubinate than the kind of 'proper' things with an official recognition whatsoever; let's not forget that the Italian society of the time was fairly conservative, not to mention inequal, and obviously such considerations had an impact on the relationship between the colonists and those who were colonised.

The madamato was a relatively common (if unrecognised) practice involving 'temporary' arranged unions between an Italian man and an Eritrean wife; it was widespread among labourers and members of the military alike, as it was tolerated by the latter's superiors - the spouses were usually virgins and thus far less likely to have contracted many of the diseases local prostitutes had. And given how class-conscious people from the higher classes were it is not unreasonable to assume that they didn't actually take part in the system, which was largely limited to soldiers.

What happened to the children of these unions?

Many of these children ended up in the care of religious organisations - keep in mind that one of their parent was more often than not a soldier - but a few were actually legitimised by their biological fathers, at least until 1937/8.

Colonial authorities had initially taken a disapproving stance on the matter and after the rise of the Fascist regime, they actively tried to put an end to these practices... with little success. If you take into account the fact that the Racial Laws proved either too difficult or problematic to enforce even in the more tightly-controlled Libya, it's not hard to see why the authorities failed in doing so despite the harsh measures enacted by the central government.

Was it a taboo subject in Italy and Eritrea at the time?

Not quite - meaning that while that practice may have been very well frowned upon in the mainland, everybody knew what was happening and there was little that could be realistically done about it. Ironically, the further away from the colonies these officials happened to be the more concerned they were! There was disparity of opinions...

...local commanders and bureaucrats cared relatively little about it, not least because they might have had an Eritrean 'spouse' themselves. And perhaps unsurprisingly, the hundreds of thousands of labourers who were called to work on the infrastructural projects pushed by the regime - such as the Imperial Road network - cared the least of all.

By the way, finally an interesting question! :-)