For the litter box I use Carefresh. Carefresh is a lot more expensive than wood stove pellets, but the litter boxes are small and the bag of Carefresh lasts a long time. My problem with cost of bedding was due to the large drop pans below the cages. Those took up a half a bag of Carefresh, and that bag costs $15 - $20!
I have cages with wire floors, so I use the wood stove pellets in the drop pan below. When I opened the bag of pellets, a lot of the wood was broken down into little dusty particles so I didn't want the bunnies to come into direct contact with it. I'm not sure if it would cause any problems, but I didn't want to chance them snorting up wood dust.
There are other members on here who use wood stove pellets, but I never gathered if their rabbits were sitting directly on the pellets or if they were separated by a litter box screen / wire floor. If nobody pops in to answer that question, and you are concerned with your rabbits having allergic reactions to wood dust, you could make a new topic asking that specific question.