On mutant hybrid babies:
It could be possible if the endings are meant to be real and you pick Synthesis, but...
Otherwise, you don't even have the same color of blood. And your DNA turns opposite directions. And he's got a gizzard, Shepard's got a stomach. If they did somehow manage to get pregnant together, the baby would probably be stillborn due to complications of having the wrong organs! Unless you go with the "let's get Mordin to illegally genetically engineer a child from our DNA" option. Note I say illegally; genetically engineering hybrids is actually illegal within Council (and Alliance) space. I seem to remember that from some codex entry or another, anyhow.
So, if they had kids, they'd adopt. And there'd likely be plenty of war orphans in need of a home. Or, if they really wanted kids of their own, there are sperm donors and surrogate mothers out there. Wouldn't be the same as having kids together, but still.
I'm not sure Garrus is entirely joking, though, because as I've mentioned before, if you break up with him during his date scene, he'll comment that their kids would have looked strange. So he was thinking about settling down and starting a family with Shepard at least since then, and probably before. He probably knows that biology wouldn't cooperate, but perhaps because he feels so strongly about Shepard, he's indulging in a little wishful thinking or ignoring the facts until Shepard presents him with a feasible alternative. And he'd probably still wish that they could.