Why does my reputation decrease when I down-vote answers? Isn't down-voting bad answers a good thing?
It's there to help stop people gaming the system (eg posting an answer and then downvoting everybody else to make their post the top of the pile).
Voting against questions is free (there's no chance of personal gain).
A vote down is a lot stronger than voting up. It sends a message to the poster (they lose rep too) and if something gets enough negative votes, it starts to show up on the review boards as a bad answer. That's when mods get involved to tidy things up if somebody hasn't flagged it already.
If the answer is so bad that it gets deleted, I believe you get that reputation back. If not immediately, at some time in the not-too-distant future.
As far as I know Stack Exchange sites are meant to be based primarily on up-voting. If a post deserves a down-vote it should be so bad that the voter is prepared to lose 1 reputation. Thus, I think that losing reputation on down-voting an answer is to restrain down-voting to a reasonable level and promote up-voting as the primary voting method (note that there are three alternatives when it comes to voting: vote up, vote down and not vote). Also it will work against answerers voting down competing answers.
Finally, in the ideal case you down-vote an answer and also post a comment so that the answerer may improve their answer accordingly and then the answerer improves their answer and you remove your down-vote. In that case the quality is improved and you regain the lost reputation.