Just my personal opinion - I guess not bad sportsmanship, but like the Canadian Woman Hockey player removing the Silver during the awards ceremony - I think it's bad form.
I think the intent of the xsmall division was to enable small gyms that may have very few athletes be viable at Worlds and the intent of the International division was to give countries with fledgling programs the opportunity to compete together, without being overwhelmed by US teams.
I get all the arguments for why a gym would work the loopholes and I get why some think it's okay because it doesn't violate the rules, I just think it takes away from the intent.