Actually, I think that $Y:=(X\times X)/\iota$ is (topological) manifold (possibly with boundary) iff $\dim X \leq 2$. Here is a proof.
Let $\pi:X\times X\rightarrow Y$ denote the projection.
The set of charts $\mathbb{R}^n\cong U\subseteq X$ containing a point $x\in X$ form a neighborhood basis at $x$. It follows that the collection of $U\times U$ forms a neighborhood basis around $(x,x)\in X\times X$. Then, it follows that the collection of $\pi(U\times U)$ forms a neighborhood basis of $\pi(x,x)\in Y$.
Under the diffeomorphism $U\cong\mathbb{R}^n$, $\iota$ swaps the two $\mathbb{R}^n$ factors. That is, $\iota:\mathbb{R}^n\times \mathbb{R}^n\rightarrow \mathbb{R}^n\times \mathbb{R}^n$ is the linear map given by swapping the two factors. As in Charlie Froham's answer, this gives a decomposition $\mathbb{R}^n\times \mathbb{R}^n\cong V_1 \oplus V_{-1}$ into the $\pm 1$-eigenspaces. Both $V_{\pm 1}$ have dimension $n$, being spanned by elements of the form $(y, \pm y)$.
Now $\iota$ acts trivially on $V_1$ and acts as $-1$ on $V_{-1}$. This preserves each sphere $S^{n-1}$ centered at the origin in $V_{-1}$ where it acts as the antipodal map. Thus, $V_{-1}/\iota$ is the cone on $\mathbb{R}P^{n-1}$, $C\mathbb{R}P^{n-1}$.
It follows that for each $U$, $\pi(U\times U)$ is homeomorphic to $V_1 \times C\mathbb{R}P^{n-1}$. This is contractible as $V_1$ is a vector space and the cone is a cone.
Writing $U' = \pi(U\times U)$ and $x' = \pi(x,x)$, consider the local homology $H_\ast(Y, Y\setminus\{x'\})$. Given the chain of subsets $M\setminus U'\subseteq M\setminus \{x'\}\subseteq M$, we use excision to see that $$H_\ast(Y,Y\setminus\{x'\})\cong H_\ast(Y\setminus (Y\setminus U'), (Y\setminus \{x'\})\setminus(M\setminus U')) = H_\ast(U', U'\setminus \{x'\}).$$
Since $U'$ is contractible, we see that $H_\ast(U', U'\setminus\{x'\})\cong H_{\ast-1}(U'\setminus \{x'\})$. But $U'\setminus \{x'\}$ deformation retracts onto $\mathbb{R}P^{n-1}$. This has torsion in its homology for $n > 2$. Thus, $H^\ast(Y,Y\setminus\{x'\})$ has torsion in its homology for $n>2$. But for a topological manifold (possibly with boundary),the local homology is isomorphic to that of a sphere or a disc (if you're at a boundary point).
Thus, for $n > 2$, such spaces can't be topological manifolds, even allowing for boundary.
What about for $\dim X\leq 2$? First, points $(x,y)\in X\times X$ with $x\neq y$ automatically correspond to manifold points in $Y$. This follows, for example, because the action of $\iota$ when restricted to these kinds of points has no fixed points. So we need only think about points $(x,x)$.
When $n = 2$, $V_{-1}$ is homeomorphic to a cone on $\mathbb{R}P^1 \cong S^1$. Of course, a cone on $S^1$ is a disc, so $U'$ is homeomorphic to $\mathbb{R}^2\times D^2 \cong \mathbb{R}^4$. So these points have appropriate neighborhoods.
When $n=1$, $V_{-1}$ is homeomorphic to a cone on $\mathbb{R}P^0 \cong \{pt\}$. The cone is closed line segment. So, $U'\cong \mathbb{R}\times [0,1]$, so we get a manifold with boundary in this case.