Diagnosis
No, it is not safe to cook with. Ingesting coating flakes is a health hazard. This is caused by using metal utensils, abrasive scrubbers, or dishwasher detergent.
How to Fix It
You must replace the damaged parts immediately. Order a new basket (part 421921850321) and pan (part 421921850312). Use only the soft side of a sponge, warm soapy water, and a nylon brush for cleaning. Soak to loosen stuck-on food.
If That Didn't Work
If the new coating also fails quickly, your water may have high mineral content leaving abrasive scale. Dry the parts thoroughly after washing to prevent water spotting.
Heads Up
Never use aerosol cooking spray directly on the basket. The propellants (lecithin) degrade the coating. Use an oil spray bottle with pure oil or a pastry brush.