By all rights, inbreeding should be a slow, progressive degeneration of a blood line due to reenforcement of negative traits and 'garbage' genetic code. The first generation of incest would be mostly fine (monster babies from the get-go is total myth), within tolerance levels of bad traits. But the longer it goes on, the worse it gets.
(...)
This should be a reasonably accurate representation of how inbreeding can wreck a family.
That's only true if a family has bad genetics in the first place. If not, it remains unaffected. Just remember that the Egyptian Pharaohs always married their sisters, and we don't have records of inbreds or rulers who were worse than anywhere else.
Also, by your suggestion almost all Muslims in the Middle East should be 'wrecked' inbreds by now, as marrying a cousin is seen as the best possible marriage in the region (cousin marriages reach over 50% of all marriages in some cities in Saudi Arabia, for example). And that has been going on for over a millennia, at least. Probably more.
Also, can you point to any royal family that has been 'wrecked' by these intermarriages? Because everybody ALWAYS points to the Habsburg King Charles II of Spain, but always forget that he was only one guy out of many hundreds (therefore not far from the statistical reality for defective sons of non-related people) and the the Habsburgs all over Europe kept putting out good rulers for centuries before and after Charles II.
The real problem in the game is about marriages. They are allowed for too close of kin, when in fact in the Middle Ages the Church forbade marriages between relatives, even between cousins.
Only occasionally did Rome allow marriages between nephew and aunt, and then only in the cases where the dynasty would die out if an heir was not produced. This permission cost gold (and I suppose we could also say piety) to get. CK2 does not have this ban, and allows dynasties to 'shield' themselves of outsiders [which is exactly what Rome did not want].