M.K.
I've never heard that there is anything generally bad about petroleum jelly. It is completely insoluble in water -- which means that if you spread some on your skin, it will repel water while it will prevent any of your skin's natural moisture to evaporate. This can have a downside: it will essentially block your pours and, depending upon your skin type, could lead to break-outs. Because it will completely seal-in the skin's moisture and repel everything else, some people still use it to prevent diaper rashes. If you spread it over a scratch on your skin, it will prevent any dirt/bacteria/etc. from getting into the scratch. However, petroleum jelly will not be absorbed into the skin -- so it will not add moisture to your skin.
There are a few dangerous uses of petroleum jelly, including use on burns & sunburns (it will trap the heat inside) and use for nasal dryness (excessive use can lead to issues with the lungs). But it was used in World War II as a sunscreen for our soldiers, as it provided almost 100% protection against ultraviolet rays.
I wonder if the issues you've heard about have more to do with petroleum as a fuel source? Obviously, extraction and use of petroleum/crude oil has serious environmental issues for us all. I'll be interested in learning from other Mamas that respond. But, lest we forget our high school science learnings, crude oil (petroleum) is a fossil fuel, meaning that it was made naturally from decaying plants and animals living in ancient seas millions of years ago. Can't get much more organic than that!