I've never understood this. You tend to find the same sort of thing with Judaism. It being described as a race instead of a religion. Islam is a religion, a way of life if you will, not a race so how can a Christian and Muslim produce 'Muslim children? If a Christian marries a Muslim and they have children, what's to stop them becoming a Budhist, pagan or anything else?
I am British but ethnically i'm half Jamaican and half British and was raised a Christian. I have now converted to the Wicca path of Paganism. My husband is Persian(Iranian) but is not Muslim nor does he follow any religion apart from that where he worships his wife and child:-)
What does that make my daughter?