Ëalar and Incarnation.

[obloquy]

Great question! Glad to see someone's paying attention.

Is it physically possible for a maia in animal form to produce offspring with a true animal?

I believe the union would be possible (Ungoliantë being the prime evidence of it being so), just not allowed by Eru. Ungoliantë would not have abode by the axani that Eru instituted for the Ainur, however.

did he [Eru] allow it on the evil side because Ungoliant's spirit was already so preverse?

Interesting thought, but I think it wasn't so much that he 'allowed' it for her, just that he didn't intervene to stop it. You might say it's the same thing, but I think there's a very fine distinction in this case. Ungoliantë's mating with a beast was certainly not approved by Eru.

Was she technically incarnate because of the evil she had committed?

Evidence indicates that she was incarnate, probably even from the first time she appears on the scene to aid Melkor, considering her lust for consuming.

Now the question is, What kind of sentience could she pass to her offspring? Was Shelob a rational being?