No it's not bad for a toddler to sleep with a pacifier.
If the toddler sleeps better with the pacifier then there's no need to worry about it or get rid of the pacifier until they are ready.
Most kids will give up the pacifier on their own by age 4 years old but if not then you may need to just take it away from them.
Pacifier use past age 4 can lead to speech delays and make it hard for the child to be understood so it's okay for the child to have the pacifier at night at age 3 and 4 years old and even at 5 years old if that's what helps them sleep.
However if the child is 4 or 5 years old they should not use a pacifier during the day as it can mess with their teeth.
One of my kids slept with his pacifier until 7 years old but he stopped using the pacifier during the day at age 3 but wanted to use it at night.
Kids grow up so fast anyway and if the pacifier comforted him at night at age 7 that's okay.