So after almost a year, I've developed my own comfortable style of picking; some would call it economy picking.

I've gotten fairly decent with it, but i feel its a bad habit that will inhibit me sometime down the road and I would like to break it.

When i watch my friends (5+ years of playing) play, they are strict alternate pickers; They sound much more in time and their notes are of equal volume whereas mine are not so much of either. - i dunno if that's due to my lack of experience vs theirs or this picking dilemma.

I'm now shooting for 100% alternate picking.

To help re-teach myself, I've been practicing this exercise I picked up on justinguitar:

After a couple days of this exercise, I can play it pretty well while alternate picking.
Here's my problem though, I cannot play it cleanly without staring at my picking hand.

When i look to see what my fretting hand is doing, i either mess up with the 100% alt. picking and go back to my comfortable way of economy picking, or I hit wrong/miss strings entirely.

So my question is, is it bad practice to watch my picking while I'm 're-learning' how to pick?
I don't want to get stuck in an even worse habit like that.

I don't think it's bad to watch it; just make sure that you're not dependent on looking at it. Don't be obsessed with speed, it's better if you can play it slower and not stare at your hand than playing it quickly but having to stare and think about it a lot. It should feel natural.
I'm not a Bible-thumper anymore. Realized I had a brain in '09.

I like guitars, running, and math.
get used to playing slowly without looking at your picking hand first - for such a necessary skill, you need to get it right when you start practicing without getting into bad habits
Member of the 'Guitarist Born in 1991' club