A dictionary having a definition in it isn't evidence a given usage is good. The primary mission of most dictionaries is to help people understand language they encounter, which may include ill-advised-to-use, misleading, ironic, code- or register-specific, or slang senses of words.

In this case, it was not a good idea to use the word "literally" this way, in this place. The clearest sign that it wasn't a good idea is that this discussion about the word is happening.