i don't think it's 'bad' persay, but i think it is generally frowned upon. sleeping is the time where you let your brain shut down and rest, but if you have your ipod playing, then your brain is still working throughout the night and never takes a break... and that could eventually just cause problems like migraines if i had to guess.
Absolutely not! Well kind of, it just drains your iPod battery. I myself fall asleep every night to a playlist of soothing music that reminds of my childhood. Just make sure and turn the volume as low as it will go. And make sure that you listen to songs that you like (but that you don't want to sing along to).