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Everyone has a different way of using pallets. I think it's a personal choice . The pallet coops and other projects that we have built, were best used as boards. I prefer more ventilation, so we prefer open/air coops. Insulation is great but not really a concern for me and the area where I live.
WelshSpring, I like what kuntrygirl says, its a personal choice best made after a little hands on experience. If you decide the tear down method and using them as boards, I would first get one pallet and actually take it apart to see if it is manageable for you. The pine pallets I used were RELATIVELY easy to tear down, but I used approx 16 pallets, took about 15-30 minutes per pallet to put in perspective. Some pallets are nearly impossible to tear down and its almost better to saw them apart, but you get shorter boards. As far as looking tidy, you can get that with either method, see the pictures posted towards the front of this thread, you would never know whole pallets were the walls, you just see siding and all the lines are true (very nice erndbrt!). I think flyboys coop is going to look awesome. As far as insulation I would think using the pallets whole as flyboy is doing would be easier to insulate. The route I chose (take apart, use the boards) I think would be harder to insulate, it could be done but not necessary for my climate. Been 110 heat index here in the south for weeks, winters are average temps in the 30's with occas dips into the teens but not prolonged cold.
My personal preference is to use the pallets whole. I got all hardwood pallets and pulling them apart proved nearly impossible without damaging quite a bit of the wood, or you could use a sawzall but then you would still have to use dimensional lumber for wall studs, etc. I wanted to buy as little as possible for this coop. My wife was thrilled learning I had to replace my circular saw and power drill during this project ;o) That's what I get for buying power tools at wallyworld.
If one wants to insulate their coop, leaving the pallets whole will make that easier as well. The full pallets leave you pre-made "studs" to place your insulation between. I plan to insulate mine and cover the inside walls with OSB as I did the outside walls... At least I think that's what I'm going to do... After reading the thread about open air coops and much debating with my wife and her friend whom has had chickens, I leaning towards NOT insulating it... Are our chicken breeds now a days that weakened that they cannot handle cold weather?
One note I will add: If using whole pallets, it will go MUCH easier if your pallets are all EXACTLY the same size, including thickness of the wood slats. Mine were not in the name of saving time spent in our boiling hot pallet trailer at work..... A little more sweat gathering the pallets would have saved me loads of time during consturction.