I thought that the dual citizenship was only not allowed for naturalized citizens (with known exceptions). To acquire a German citizenship, you usually have to give up your previous citizenship, and if a German citizen applies for and acquires a citizenship of another country, s/he loses the German citizenship.

In the case of citizenship via German ancestry, it's just a matter of determining that you are (and have always been) a German citizen. So dual citizenship should not matter at all.

NB: This is my personal opinion and not a legal advice