Yes technically it is inbreeding, but any stud be it cats, dogs, cattle or horses will call it line breeding. It is relatively safe breed wise to do a couple of breedings within the same line such as daughter to father, mother to son, or son/ daughter to grandsire/ granddam. BUT as you pointed out continued line breeding is NOT good for any long term genetic diversity. As most known breeds that have been developed over centuries and have a defined breed requirement (eg must be so high, with smooth coat of only certian colours etc) the original stock generally came from a limted number of animals that displayed the desired characterisitics (look at crystal red cherry shrimp as a prime example of this), also depending on what country you reside in depends on how many of that particualr breed was orginally imported, and if say any more can be imported easily enough to warrent new blood lines coming into the country. And YES line breeding or inbreeding does cause all sorts of genetic weakness in breeds that is why hip displaysure, various allergies, and at times even mental issues are prevelant in some breeds. Because of the demands of a breeds show ring qualities some breeds are flat out breathing let alone sucessfully having pups without a vets aid (English bull dogs come to mind here), in Australia the breeders recognised the terrible issues facing bulldogs and went about developing a larger dog, without such narrow hips and not so squashed in face in an attempt to improve the overall health and well being of bulldogs.
If you are worried about the potential problems that can come with have a pure bred/ pedigreed breed of dog I would look for a dog that has either one or both parents as pure but not of the same breed, in essence a mongrel. To a degree from a known cross you can determine what sort of general make up/ characteristics the dog will eventually display eg. almost all dogs with strong herding dog genes in them will still herd or have that drive to work, any breeds that retreive will also often still have this drive but may not be as soft in the mouth (in order to not damage what has been shot the whole purpose of retreivers), the same applies to many guarding or protection dogs.
If you really want a purebred/ pedigree dog then your best bet is talk to vets about the breed you are interested in and find out what problems that particualr breed often presents with (if any), go to dog shows and talk to the breeders (some can be very catty and will happily talk up thier own bloodlines while degrading other breeders of the same breeds lines). And once you are armed with all the available knowledge of the things to watch out for and found a reputable breeder then also ensure that any pups have been vet cleared of the major health issues such as hip displaysure and any other genetic defects that can be tested and certified against.
The whole issue of genetics is much more indepth that can really be explained easily here, but I hope this has given you some ideas.
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