Not sure if that was the question....in my program, faculty aren't usually hired from the graduate student pool either (though it's been known to happen, we have a few).
I think the question is about doing a PhD in the same place as undergrad. And when you say 'frowned upon,' who are you talking about? Faculty at the program, or internship directors or department heads who might want to hire you later? I am not sure it matters; I feel like who you work with in graduate school is more important than the name of the institution. We have several clinical PhD students in my program who also got their undergrads here, and they seem to be doing fine so far!