Close, but it’s one more step down. The box implied is only once-removed. Great aunt’s second cousin twice removed would be the same generation as Cup. There’s also a second interpretation of the title (since cousins are reflexive), but it’s even messier.

theory eight: they only had one foal, then mister cake got gender swapped and age regressed, sent back in time to the day of his son’s birth.

Theory Seven: While Carrot knows his heritage very well, he is not as familiar with Cup’s, and is thus only quoting a relative he knows about to demonstrate that there was the possibility of a common pegasus ancestor farther back than depicted in this chart.

The Unicorn side makes perfect sense on its own. As for the Pegasus side, why was that 2nd cousin one? If his/her Pegasus ancestor is also one for Cup Cake, it could still make sense.

@Crowley  

 
One: The opening scene of that episode is in the maternity ward of the Ponyville Hospital.  
Three: Not actually more plausible. You’d still need to explain one of the twins being different race than either parent, which isn’t much better that explaining two, plus the twins certainly look like they take after Carrot, especially Pumpkin.  
@Deserter  

 
Not fucked so much as the differences between tribes, particularly pegasi, that they wrap around to being impossible for them to be genuine genetic difference. It must be something like ants and bees where there are just some switches that decide what race a pony is, while all of them have all the genes necessary for wings and a horn.
 
So.
 
Theory 4: caused by prolonged exposure to Pinkie Pie in pregnant mare. And or to Ponyville in general.  
Theory 5: the Cakes do have some close unicorn and pegasus family that they really don’t want anyone to know about.  
Theory 6: Discord turned them into a pegasus and unicorn, either during the initial rampage or they asked him later. They don’t want ponies to know what their priorities are in such a situation.

I still think Pound was adopted and he BSed that reasoning to hide it from everyone else.
 
Pumpkin very clearly has her father’s coloration and her mother’s hair.

@Deserter  
This one’s still the most likely to me.

@Crowley  
Theory four: Pony genetics are fucking fucked.

Theory one: We never see a pregnant Cup Cake in the episodes before this: they’re secretly adopted and they’re telling everyone else that so they don’t accidentally let slip that they’re adopts in later life.
 
Theory two: Surrogate birth from family. Kept hush for similar reasons.
 
Theory three: Some other pony has been baking Cakes with Cup’s oven.