No, it is not a bad thing. It is not really "good" or "bad" in any sense. Its simply a different format than full-frame, which is different than medium format, etc. There are pros and cons to each. The smaller APS-C style "cropped" sensors do have some effects on lens focal length due to their field of view, and that can be beneficial or detrimental, depending on how you choose to see it. Here are some facts about sensors:

1. Cropped Sensor Formats (APS-C)
   • These are smaller sensors
     • They have higher manufacturing "yield" than larger sensors
     • As such, they are generally much cheaper
   • Photosites are generally smaller and more densely packed
     • This generally results in lower signal-to-noise ratio, more noisy pictures
     • This also means the maximum dynamic range (contrast ratio) of cropped senors is lower (less light gathering power per photosite)
   • They have a narrower field of view compared to larger sensors
   • Their narrower FOV has the effect of multiplying the focal length of any lens
     • This may be beneficial if you need super telephoto lengths (i.e. 400mm on FF ~= 640mm on APS-C, effectively)
     • This may be detrimental if you need ultra wide angle lengths (i.e. 16mm on FF ~= 26mm on APS-C, effectively)
   • The additional "effective magnification" offered by a cropped sensor is only illusory, and is not actual magnification
     • Given a large enough sensor with enough megapixels, and the same exact "crop" provided by a cropped senor can be achieved with a full-frame or medium format (however, the larger sensor would need some SERIOUS megapixels to achieve this.)
       • The 1.6x crop sensor of a Canon 450D would require a full-Frame sensor with 31mp to achieve the same crop
       • The 1.6x crop sensor of a Canon 550D would require a full-frame sensor with 46mp to achieve the same crop
2. Full-Frame Sensor Formats
   • These sensors provide the same "usable" pixel area as 35mm film
   • These sensors are larger, and have lower manufacturing yield
     • This generally means they are more expensive
   • The photosites are larger and often less densely packed
     • This results in better signal-to-noise ratio, less noisy pictures
     • Dynamic range is generally higher with larger photosites.
       • (The new Canon 1Ds IV with a 30mp+ sensor is touted as having full 16bit RAW capability, which offers much greater dynamic range than the general 12bit RAW of cropped sensors)
   • Their field of view is "normal" from the perspective of the bulk of the photography community and equipment
   • A lenses focal length is as stated when used on a full frame
3. Medium Format Sensors
   • These sensors are often much larger than full-frame (up to 57mm or larger)
     • They have extremely low yield, and thus their cost is extremely high
   • They have high density, but large photosites
     • This results in some of the best dynamic range possible in a digital sensor
     • Leica and Hasselblad's latest medium-format sensors tout 24bit RAW
   • They may have a much wider field of view than normal 35mm for a given focal length
     • A lens of a normal 35mm focal length would be shorter on medium format, providing even greater field of view
     • As with cropped sensors, the effect is illusory, and only useful when describing things at a technical level

(Note that the effect of sensor size on focal length or the apparent magnification assumes a common lens system. Medium format cameras tend to be rather specialized, so a direct comparison here is likely impossible. For the sake of discussion, the effect given similar lens system and focal lengths would thread throughout the range of sensor sizes.)