While newspaper is generally 'free' (what else are you gonna do with it after you read it?) the shredder certainly isn't and depending on what size coop you're filling you do run the risk of burning up a shredder. To prevent this I shredded paper for about 5 minutes a few times a day till I got enough paper for my coop. I only used the regular newspaper part, not the shiny ad papers.
I chose the d'Uccle coop for this experiment. It's not terribly large which I thought was a good idea in case it failed miserably. I covered the coop floor with about 2" of shredded newspaper. As the days went by it packed down and I would add some from time to time. The chickens had no problems walking in or turning the paper. The coop didn't smell and when the paper got wet it quickly dried out. I did see them eat a piece or two, but didn't notice any problems from it.
I have to say it's not the best for nest boxes. It's easily kicked out of the nest boxes leaving the middle of the nest box bare, with a fluffy ring of paper around the outer edges. Also when chickens lay an egg, it is still slightly wet. A slightly wet egg picks up the print from newspaper making a sort of decoupage look on the eggs. It's kinda of neat looking but try explaining that to egg customers! I ended up going back to shavings in the nest boxes.
During my research I did find many complaints that the shredded paper often blew out of the coop and all over the yard. This also happened to me. The coop I chose was in an enclosed run so the paper mostly stayed within the run. I think it broke down quicker because of this. I throw scratch in the run occasionally so with the birds often scratching through the leaves/dirt/ paper it decomposed fairly quickly. The few pieces that got out just sort of disappeared after it rained. I know many gardeners add newspaper to their compost piles so I'm not expecting any problems when it comes time to clean the coop out and compost the bedding.
Towards the end of my experiment I had a spill in the biggest coop (12X20) and about 1/2 the bedding needed removed ASAP. I only had 1/2 a bag of shavings on hand, it was in the negative degrees out with windchill and the local feed store had already closed for the day. I was stuck, so I dumped all the shredded newspaper I had in there. I figured it would at least get me through till morning. It worked like a charm. It mixed well with the leaves/shavings mixture that was still in half the coop. The newspaper did break down quicker then the other stuff, but surely saved my butt for several days till I could get to the store.
So, whats my final verdict? Shredded newspaper works. I imagine in a rainy season it would stay wet a good bit, but in normal weather it's fine. It makes a little mess outside the coop but nothing that won't decompose quickly. It doesn't seem to stick to the chickens feet any more then any other bedding. It blends with other types of dry bedding well. (didn't try it with the sand though) Don't use it in nest boxes unless you want your eggs to have that fancy newspaper-decoupage look. It can go into the compost pile after the coop gets cleaned.
I can't say that I will be changing all my coops over to shredded newspaper but I will certainly be using it from time to time.