My Eglu run and coop are situated on wood chips and the chickens seem OK with this. The wood chips were provided to me by the arborist service that trimmed our trees, so they are a combination of chippings from our trees and someone else's chippings. They are not finely chipped, but work well for covering the ground.
I think the wood chips are working out very well for me. The run doesn't get soggy and muddy, even when we were getting a lot of rain. And just by raking the bottom of the run a bit, the droppings get worked into the base of chips and start decomposing. The combination of dry, "brown," materials like wood chips, and the wet, "green," materials like chicken droppings is a classic "formula" for composting with minimal to no odor or other unpleasantness. I think that since the ratio of dry to wet is more in the favor of the "browns," the composting process is working rather slowly, and therefore isn't producing a lot of heat at this point.
We had a nasty storm move through the Chicago metro area about a week ago that downed a lot of trees, so I'm thinking I may be able to call up the city and get a truck load of more coarse wood chips that I can spread around.
This is the photo of the Eglu, sans chickens, so you can see how it is situated.
And this is a photo of the yard, before I put in the Eglu.
As an aside, I have big plans for this area that include building at least 4 more raised beds for edibles. The planning and decisions on materials, etc. is taking quite a bit of time, that's all.
As for the lining in the nest box, I am currently using some hemp bedding I picked up at a pet store. I don't know if I'm going to continue to use it or not, just thought I'd give it a try.