Inhaling dust from anything, house dust, ashes, wheat flour, chicken poo, garden dirt, DE, or anything else, (make sure you include toxic pesticides in that list) is not good for your lungs, or the rest of your respiratory tract.
But chickens love to stir up dust and bathe in it.
They don't seem to have as much of a problem with that as humans. I don't know why. Maybe they have something that protects them from inhaled irritants, since it is part of their nature to do this.
Not all silica is bad.
Crystalline silica is the bad form, it causes major lung problems if inhaled. Pool filter grade is heat treated, the heating causes partial melting and the formation if crystalline silica. It may have other substances added as well, so you should never use pool filter grade DE for anything other than pool filters.
Freshwater diatomite is mined from dry lakebeds and is mostly hydrated
amorphous silica. Food grade diatomaceous earth contains less than .5% crystalline. (that's less than 1/2 of 1%) The
saltwater form contains a highly crystalline form of silica that can be dangerous if inhaled.
Food grade DE has been used in grain storage for a long time, to prevent infestation by insects. If you eat grain products, you eat food grade DE.
It kills insects by abrading the outer cuticles and absorbing the moisture from the insects. It dries them out. Not all food grade DE is equal. It should have a hardness rating of around 7 on the mohs scale. The softer grades are not as effective, not being hard enough to abrade the insect shells, which may be why there is such disparity of results among different people who have tried it. Permagard is supposed to be one of the better brands, I'm sure there are other good quality brands as well.
I use food grade DE in my coop, under and over the straw on the floor, and in the nest boxes. I sprinkle it over the dirt in the favorite dusting sites. I mix it with the feed. I feed it to my dogs and cats. I take it myself when I have digestive upsets, and so does my DH. It hasn't harmed any of us.
DE is composed, not of fish bones, but the fossilized skeletons of microscopic aquatic animals, called diatoms. Here's a link to some nifty diatom info.
http://en.wikipedia.org/wiki/Diatom
Here's another link with more info about food grade DE.
http://www.shadowridgedonkeys.com/perma_guard_difference.htm