Cedar is not horribly toxic, per se. Also, cedar is many different genus/species in many different places. The problem caused by the "fumes" from some cedar is that they can irritate the respiratory tract. The stronger the smell, the worse it will be. In an open, well ventilated coop, just using cedar for the nests would probably be perfectly fine. Using it as the only bedding in a tight coop would be less fine. If it's dusty, it would probably represent a significant hazzard. That said, I'm of the opinion that nest boxes should be cleaned regularly, which will keep parasites down. I clean mine out weekly. It gives a nice fresh coat of relatively clean litter to the coop and fresh stuff to the nests.