I've been using cypress mulch for about a year now without mishap. It holds humidity very well, and is very inexpensive. I find that if you spot clean for about 7-14 days, and then fully clean and replace after 14 days there is no 'funny smell'.
Newspaper is another cheap substrate that's good, no spot cleaning though, it's all or nothing. I just prefer cypress because it's a bit more naturalish.
So far as the bugs go; I've never had a problem with any sort of bug/parasite. None of my snakes have gotten mites, even though the rat colony got some 'wood tick' 'wood mite'? I am a big fan of quarentine and Provent-A-Mite though. Always better safe then sorry, unless you know where you have recieved your animal from indefinately.
Hope this helps.
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Violette Garcia
www.shakahnsgrove.com