Is the practice of lab members extensively citing each other's work looked down upon in academia?
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.