Straw molds too easily...definitely a bad thing to have around chickens. Straw will even mold from condensation...and since chickens give off so much heat, I can see it being a big problem in the winter.
why wouldn't it work if it had all the required elements of a coop? ie... proper ventilation ect...... I visited a straw bale barn once used as a cow barn and milking station. It was remarkable!!! So cool in the summer and the cows loved it!!!! The barn I saw had earthen walls inside and out, so it was almost adobe.
you plaster the interior and exterior so it's as hard as stone. The bales take the place of using wood to frame the coop and wood to side the coop. Many homes are made from this method. Here is a picture of the plaster going up on a straw bale home. http://www.pbase.com/michellemahood/image/899474