LoneRebel
Emperor
In my current game, absolutely, city states generate great prophets.
I am playing as Attila, and I have wiped out all the other civs on my continent. My religion is the only one around, and no other civs have astronomy yet, so they certainly aren't sending GP's my way.
I see a GP around. Just to answer this question, I quick save, declare war on the CS, and capture the prophet (I don't really want to because that CS is my ally but I'm curious to see what that prophet is).
Low and behold is it a GP of MY religion. The CS has my religion, and generated a GP that is of my religion. I guarantee you that I did not lose a GP to barbarians or anyone else -- that GP with my religion was generated by that CS.
Now the real question:
What is the CS going to do with it? Is it going to go out and convert cities? What?
Surprising! I never knew that CS could generate Great Prophets.