Yes, turning a living being into a Horcrux is a terrible idea.
At least according to Dumbledore, that is:
“The snake?” said Harry, startled. “You can use animals as Horcruxes?”
“Well, it is inadvisable to do so,” said Dumbledore, “because to confide a part of your soul to something that can think and move for itself is obviously a very risky business. However, if my calculations are correct, Voldemort was still at least one Horcrux short of his goal of six when he entered your parents’ house with the intention of killing you...
...After an interval of some years, however, he used Nagini to kill an old Muggle man, and it might then have occurred to him to turn her into his last Horcrux. She underlines the Slytherin connection, which enhances Lord Voldemort’s mystique; I think he is perhaps as fond of her as he can be of anything; he certainly likes to keep her close, and he seems to have an unusual amount of control over her, even for a Parselmouth.”
(Half-Blood Prince, Chapter 23, Horcruxes).
There are several reasons why creating a living Horcrux is not a smart thing to do.
- That being could theoretically betray you or commit suicide in order to render you mortal again. Having your soul inside them may give you a certain amount of leverage and control but that control is not total. Harry Potter is evidence enough of that.
- The being could die in a freak accident, just like any other being. It could fall off a cliff or be caught in a fire at any given moment.
- Living beings move about, which makes them easier to track and identify for any enemies who are hunting your Horcruxes.
- Possessed creatures act strangely and have certain give-away behaviours (like Harry's visions) which betray that they're being used as Horcruxes. This, again, makes them vulnerable to attack.
The whole rationale of having a Horcrux is that it's supposed to be totally secret and totally secure. There's not really much point in having it if somebody that wants you dead can track it and destroy it. By placing a portion of your soul in a living, breathing animal or person you are effectively entrusting your soul to chance. Because they are moving around freely disaster could strike them at any moment. You are also dangling them in front of your enemies, making it more likely that they might destroy your Horcrux.
Consider the times when Nagini was in danger. She was around in the graveyard during Voldemort's rebirth; Harry could have killed her, either intentionally or by accident. She went on a solo mission to the Ministry of Magic, where she could easily have been attacked by Arthur Weasley (if he'd been conscious) or another Ministry wizard. She acted as bait for Harry and Hermione and could have been killed in that fight. And, of course, she attended the Battle of Hogwarts, when she was killed out-of-the-blue by Neville Longbottom, someone that Voldemort would never have seen as a threat to his Horcrux. Nagini may have been able to look after herself, generally speaking, but she was still vulnerable to attack.
Looking again at Dumbledore's quote, it seems clear to me that Voldemort was well aware of the risks and downsides to using Nagini as a Horcrux. However, he was one Horcrux short at the time and he used Nagini partly out of desperation. His affection for her may have blinded him somewhat. Using her was still a bad idea, as her death ultimately demonstrated.