This is not a proportional voting method.
First issue: Suppose there are two opposing factions, one comprising 55% of voters and the other 45%, in a three-winner election. The smaller faction fields only one candidate. Let’s suppose the 45% of voters marking this candidate as “good” is enough to get her into the top 3. Then this candidate has the most “bad” ratings and is permanently eliminated, leaving the smaller faction without representation. This issue can be addressed by not having the rejected candidate permanently eliminated.
Second issue: Suppose the same factions for a three-winner election, but suppose each faction fields many candidates. In the first round, three candidates from the larger faction have the most “good” ratings. Suppose the vast majority of voters in the smaller faction gave each of these candidates a “bad” rating and a bit over 45% of voters (who are in the larger faction) gave the elected candidate a “good” rating. For the next round, voters in the majority faction and those in the minority faction will have lost roughly the same amount of ballot weight. This again allows the majority faction to win all three seats. To fix this issue you’d have to have ballot weigh only depend on support for candidates who were elected.
With both of these changes, I think you’d be left with something that at least comes close to being proportional, though you’d still have some issues. It would be possible for a majority faction to prevent any one candidate from being elected by marking that candidate as the only “bad” candidate and by having hardly anyone mark a candidate as “good”. (This strategy is terrible in practice and can be countered by having the minority faction run a “clone” of this candidate, but it still makes the voting method fall short of proportionality.)
You have to be careful with this argument because it’s valid for any candidate-based proportional voting method. All such voting methods rely on the influence of voters who strongly support candidates who get elected being reduced with regard to other candidates, so all of them have such an incentive. (It takes different forms in different voting methods; in STV the incentive isn’t to forgo ranking such a candidate altogether, it’s to rank such a candidate second or third.) This does not mean the incentive for free-riding is equally strong under all candidate-based proportional voting methods, however, and I do think that strategy is more important under SPAV than under some forms of STV.