Vitiligo isn't a life threatening condition. It can be genetically inherited but it doesn't automatically follow that a child will have it if the parent does. None of MJs siblings appear to have it.
It seems very unlikely that this is the reason he didn't father the children.
As for the racial issue it surprises me still that he didn't want a black sperm donor. His family are black and identify themselves as part of African-American culture. If they had a black parent his children would more easily fit in with the rest of the family. I know people will say, what does it matter what colour the kids are, but in America they are more into labelling themselves than we are.
Hm, you are correct in saying that vitiligo is not life threatening and is not necessarily likely to be passed on (my father has it, but neither I nor either of my sisters do, as far as we can tell), but it can be very unpleasant, particularly for someone who does not have pale skin naturally (which presumably, his children wouldn't have).
As for the 'not using a black donor' thing... This is just my reasoning... Whilst his family may have identified themselves with black culture, I am not sure Michael did. Look at his plastic surgery, all procedures that made his features less like that of a black person (or any kind of person really, but still), and his hair that was turned straight, and non-afro.... He certainly doesn't strike me as someone who was happy with the way he looked and was proud of who he was, he may have thought that passing on his 'bad' genes would have not been good for the kids.