Interesting material. Has anyone in the group tried it and does anyone locally install it? We tried damp applied cellulose in a new house a couple of years ago with disastrous results. Black mold grew on the outside of the plywood sheathing and the back side of the Typar house wrap. The siding had to be stripped off and things dried out. A series of unusual circumstances that created a perfect storm?
The mold on your plywood sheathing may have been encouraged by poor installation practice or too quick a close-in of the walls, but likely had other contributing factors.
Kiln-dried lumber is milled at 19% moisture content by weight and it takes a new house a full year to completely dry to a stable level. Modern cellulose installation techniques require very little added water, and the walls should always be left open from 1 to 3 days following application.
Running salamander-type temporary construction heaters only puts more moisture into the indoor environment. Cellulose has been successfully installed in northern climates without a vapor barrier (as long as there is good air sealing), and applying a plastic vapor barrier and closing in the wall before dry-out will almost certainly create a mold problem.
The brand of cellulose, also, makes a big difference. Only those, like National Fiber, who use EPA-certified fungicides can guarantee no mold problems.
If wall plate penetrations in the top and bottom plates are not properly sealed, this could create a significant source of moisture in the wall cavities.
My guess is that you had a "perfect storm" caused perhaps by poor quality materials, poor installation technique, and inappropriate construction practices. Don't blame the cellulose - there is no better insulation on the market.