Inbreeding definitely is bad. Even if you are trying to "distill" good traits, animals and humans have too many mutations as is. Inbreeding only exacerbates this.
Inbreeding is done all the time. Obviously, in the great scheme of things it has hardly made any negative impact. You can get crap from outcrosses too.
Neither is inherently bad. It is when it is used IN SPITE of KNOWING (very) bad traits exist that inbreeding is bad.