Can males with diabetes father a healthy baby?

Yes. Yes, you can father a healthy baby. The baby is affected more if the mother is diabetic since blood sugar fluctuation during pregnancy can directly affect the well-being of the baby.
They often do. Any male may have a fertility issue for a variety of reasons, but most adult male diabetics are fertile. Their healthiest sperm are the best swimmers capable of causing pregnancy. Once the job is done, the rest depends on the mother. The baby would have a low but possible risk of ever becoming diabetic, but no related problems during the pregnancy.