I personally think they are simply a mixture of white and Indian.
For that matter, there is a tremendous variation among Indian tribes.
"I read an article on them in the Asheville paper quite a few years ago. I think they claimed they were Portugese."
The Melungeons are concentrated in NE Tennessee, SW Virginia, and perhaps part of SE Kentucky. They are somewhat prevalent in Hancock County, Tennessee, particularly in the Newmans Ridge area. I had heard about them for some time, but had never knowingly run across one until several years back I made a trip to Sneedville (county seat of Hancock County). There I saw two men who fit the descriptions I had heard of perfectly: wiry hair, swarthy complexions, prominent noses. I immediately assumed they were Melungeons. Many people claiming to be of Melungeon heritage, however, look completely Western European. (Indicating, perhaps, that the physical descriptions I had heard of were incorrect or that such claimants had very little Melungeon blood in them.)
My understanding is that some thought that their ancestry traced to Portugal, while others tended to think they were Gypsies (of Egyptian origin?). It is a fascinating issue.