Common wisdom is that it creates a bad environment, but I think it has a lot to do with your personality type, I have accepted counter offers before and it has been fine, but I am a pretty open and honest person, people know where they stand with me and they know that I will take a significantly higher compensation package if all other things are equal. I usually lay that out in the initial interview, I tell my potential employer that I expect to be compensated at market rate, and to remain compensated at market rate, that I will occasionally check the market to verify and that I will always give them first right of refusal should I find a discrepancy. I think educating people on how to maintain your loyalty has a lot to do with how the situation turns out.

On a slightly tangential note, when I worked for other companies, I was generally regarded as a loyal employee, all things being equal I would rather stay with a company I know, as there are a lot of unknowns in switching companies, I was always upfront about this fact, but I was also upfront about a large discrepancy in compensation being a factor that could compromise that loyalty. Giving people the tools to maintain loyalty helps employers clearly see what they need to do to maintain personnel.