I think if Vincent had any suspicion what so ever that the baby might be his then he would have stopped her.
But it seems that he didn't actually get anywhere with Lucrecia, they had a picnic and he had feelings of love for her, but she seemed to have a slight attraction that was completely overpowered by her feelings of guilt about what happened to Grimoire. I don't think they ever even kissed let alone slept together.
Not sure what Lucrecia and Hojo's relationship was, whether they were together or it was just for science but they seem pretty united on what they planned to do. Theres a bit in DOC where she runs into Hojo's arms in a kind of sexy way so I think it was slightly more complicated than just "In the name of Science". Hojo definately had some sort of power over Lucrecia, probably amplified by her self esteem issues and extreme guilt problem.
Its Lucrecia and Hojo's baby, and I guess Sephiroth got his looks from his mummy's (Jenova and Lucrecia) and his Phsychotic personality from his daddy.