Is the practice of lab members extensively citing each other's work looked down upon in academia? In my lab, a few of us submitted our papers independently to a conference last week. We all had referenced each other's work in our papers. I have a concern if this is a bad practice in academia. It also looks like a bad habit that has festered in our lab: the last two PhDs who passed out from our lab have a total of 15 citations for their papers, of which 13 are from within our community itself.

Is this practice of repeatedly citing from one's own micro-community acceptable? It seems unavoidable, as we are all working together, familiarizing with each other's work and trying to build on them.
It is only bad practice if the work is not particularly relevant, or if you cite your own group's papers instead of other relevant work.  The point of citations is to lead the reader to other related work necessary for some aspect of the paper (result, context, etc.).

That said, it is worth examining why those papers aren't getting cited.  Maybe nobody else is working in a sufficiently related area but it's critical background for the rest of what the lab is doing--then I wouldn't worry about it.  But if other people are working in the area (e.g. to the point that you might worry that if you take too long that someone else will publish the same results you're trying to get), it can be a sign that the results either aren't contributing to the field much, that the style of presentation isn't good enough for others to really understand what you're saying, or that the lab members aren't going to enough conferences to present.