It has a tendency to clump and hold moisture that then molds. It can be used lightly with other litter, IME, but not as the basis of the litter. I used to use shreds from our office all the time, but I was using a very large coop with a deep litter system...but still found that the paper had to be used judiciously or it would hold mold.
Yeah, I would think it would get wet and mushy and just be all around nasty.Plus it would take a lot of paper depending on the size of your coup. I use straw with the deep litter method, occasionally I use a bag of pine shavings if the feed store doesn't have straw.