A CDN is a way to host your site or parts of your site on servers that are more scalable in terms of server resources and bandwidth. Many large sites use CDNs to host graphics, videos and to scale up their database resources when needed. That being said, are they bad for search engines?
That being said, JohnMu from Google replied to the webmasters concerns:
I'm not sure how you're using a CDN, so it's hard to say for sure. My guess is that you're just seeing normal fluctuations with Toolbar Pagerank that can happen for a variety of technical reasons (and they generally jump back quickly too). On the other hand, if you're seeing significant changes in ranking, that wouldn't be related to a change like this.
At any rate, while moving to a CDN may result in small temporary fluctuations, making your site faster will frequently help your site much more. Some studies have shown that the faster your site is, the longer visitors will stay, and that's generally a good thing :-). As I mentioned above, if you're seeing significant changes in ranking, then I'd look for the issues elsewhere.
Overall, CDNs are fine as long as they are configured properly. They can actually lead to a faster site, which we all know Google is looking at.
Forum discussion at Google Webmaster Help.
Update: I have a new post named More Tips From Google On Content On CDNs.