If you use DE, it needs to be "food grade". Try this link for DE info.
https://www.backyardchickens.com/web/viewblog.php?id=1560-Food_Grade_DE
What you have may be mites or lice. The treatment for the ones on the chicken are the same, so it does not matter that much which it is. And they are spread by wild birds so almost all chickens will be exposed.
There is a type of mite that does not live on the chicken. I can't remember the name of the mite, but the mite lives in cracks in the coop, especially on the roost, and comes out at night while the chicken is roosting. This type of infestation can get heavy and take a lot of energy and production out of the chicken. One recommendation for treatment is to oil the bottom half of the roost. This would smother the mite. Another way is to spray with a mitacide. A product containing permethrin (Spelling?) would be good. A spray with Sevin would also work. I imagine it would be hard to dust under the roost poles for these.
DE is a preventative, not a treatment. DE will help keep the numbers down and will slow them from getting infested, but it will not kill off the lice and mites once the chicken is infected.
Treat your chickens in a well-ventilated area, like outside. Wearing one of those dust masks would also be a good idea. I'm not going"organic" and I firmly believe that the right chemical properly applied is the best way to end the suffering of a chicken infested with lice or mites, but I don't want me or them to breath any more of that stuff than is necessary. And keep it out of their food and water.
I spent some time last night onthe Missisissippi State and Texas A&M web sites reading up on this. I'll put the A&M link below. One warning both sites gave is that if you dust with Sevin (not spray, but dust), do not repeat the treatment for 4 weeks. Anther warning was that if you dust with Sevin, do not slaughter the chicken for 7 days. Sprays, even Sevin sprays, did not carry this warning.
I did not see any warnings about eggs, although the A&M site said to not dust in the nest with Sevin, but I would not eat the eggs for 24 hours after treatment. I know plenty of people do and apparently suffer no ill effects, and I have seen no official warnings about this. This is just my personal preference and is easy for me as I do not need the eggs I'd get for that time period. That's just me being cautious.
http://gallus.tamu.edu/Extension publications/b-1088.pdf