Prolonged exposure to phenols in rodents causes significant health problems. Because of its caustic properties, when the phenols are inhaled by rats and mice constantly living in soft wood shavings, the airways of the rats and mice exposed are 'seared' away, irritated enough to allow bacteria to infect the soft tissue. This in turn allows bacteria such as mycoplasma to infect the rodent, causing further respiratory stress, sometimes leading to death if the issue is not resolved through medication. The toxins from the soft wood are also absorbed into the bloodstream via inhalation. The liver and kidneys then must work much harder to remove toxins from the body, in some cases resulting in death by liver or kidney failure. This is, of course, more likely if the rodent spends most of its life on soft wood shavings. In addition to this, the bedding can also be quite dusty, causing further irritation of the respiratory system when inhaled.
Soft wood shavings are still being in sold in pet stores, because they are easy to source, are cheap and have a neutral colour and 'pleasant' smell that disguises ammonia well. It is also very easy to spot clean, making it a convenient choice of bedding.
There are alternatives to soft wood shavings. Aspen is commonly used in laboratory environments as it has similar properties to soft wood beddings, except it lacks the toxic fumes given off by soft woods. It is considered to be much safer, and few adverse effects have been recorded. However aspen shavings can be hard to come by for most pet owners as it is rarely sold in pet shops.
One bedding that is highly popular among rodent owners is Breeder's Choice paper pellet cat litter. It is essentially dust free and is relatively cheap, costing a little over $1 per litre, and is available in most supermarkets in 5L, 10L and 15L quantities. It is easy to spot clean, absorbs odor well and has a neutral colour. One negative aspect of this litter is that the pellets are hard, which may cause your rodent to dislike the feel of the bedding and cause them a little discomfort at first.
Another bedding is Care-FRESH paper pet litter. It comes in a variety of colours and has the texture of flakes of egg cartons. It's much softer than Breeder's Choice, however it is considerably more expensive, is usually only available in pet stores and online and some varieties can be dusty (this problem is not as prominent with Care-FRESH Ultra). It has also been known to not trap the smell of ammonia as well, so it needs changing more frequently than other beddings.
Linoleum is also used as a 'bedding'. It acts more as a floor covering more than anything else, as it cannot be manipulated by rodents to make nests out of. It is very easy to clean, is cheap and is easy to purchase, however is does not provide warmth to your pet and if your pet is destructive the linoleum will become damages and will need to be replaced.
Finally, fabric is another bedding worth consideration. Fleece is viewed as the best fabric bedding to use, as it comes in a seemingly unlimited variety of colours and patterns, is dust-free, it's soft, is often quite cheap, is readily available (except for remote and hot areas of Australia, where it is seen as unnecessary for obvious reasons) and is re-usable and washable and compared to other fabrics, its fibres cannot catch the fine nails of rodents and cause injury. Some downsides to fleece is that it becomes useless if your pets are particularly destructive and tear it apart and it does not absorb smell very well so it needs to be washed and/or replaced every few days.
In conclusion, soft wood shavings should be avoided due to their adverse effects on rodents when used as a bedding. Paper, linoleum and fabric beddings are reasonable alternatives, but ultimately it comes down to the pet owner's personal preference.
Further Reading:
AFRMA Article
Docstoc.com Article on White Fir Shaving
Televets Healthy Bedding for Rodents Article