I just thought I'd pass this along for you to read.
Important Note On Litter Safety:
http://www.trifl.org/cedar.shtml
Although wood chips may provide a natural means of insect and odor control, "natural" does not always mean safe. These same chemicals can also damage the respiratory tract, causing chronic respiratory disease, and asthma, and some studies have found an association between exposure to some wood dusts and oral cancers. The scientific literature on this topic is extremely clear, and unlike many studies of toxins, most of the scientific evidence regarding wood dust exposure has been conducted in humans rather than in laboratory animals since so many people work in the production of wood products. The summary of the biomedical literature that follows primarily describes the effect of chronic cedar- and pine-wood exposure on humans. Keep in mind that the effect on small mammals is likely to be even more pronounced, especially if they are in close, continual contact with wood chips. Humans also have a relatively poor sense of smell compared with other mammals. Thus, a nasal or respiratory irritant is much more likely to harm small mammals, which rely on smell for locating food and identifying and interacting with other animals