If by "living in sin" you mean fornication--a mortal sin--the answer is no. One requirement of mortal sin is full knowledge of the sin being committed. In a situation where the spouses are unaware of the invalidity of their union--what the Church calls a "putative marriage"--there is no sin of fornication, because this condition is not met.
The Church teaches that children born of a putative marriage (which exists when at least one spouse is convinced of the validity of a marriage and lasts until both are convinced of its invalidity) are considered legitimate, even if the marriage is later declared null (CIC 1137).
Illegitimacy is not a moral or spiritual state. It has no bearing on a child's soul or salvation. Historically, legitimacy impinged only upon canonical matters, being required for ordination or appointment as a prelate or abbot.