I used cypress mulch for about a year in the big walk-in enclosure I keep my biggest Burmese in. I bought the regular cypress mulch from Lowe's or Wal-Mart and used it without problems. However, I stopped using it because it was messy (and I have a dedicated snakes-only building); a year later and I still have cypress residue in the corners of the snake room. Also, I was worried about buying wet cypress (and it was always soaking wet) during the winter. So I scrapped the cypress and went back to paper. I work in the newspaper business, so I get leftover rolls of clean newspaper that serve my snake cages quite well.
To answer your question, I used cypress for a long time with no problems. My snake ate well, had no parasite problems, no digestive problems or anything like that. However, the mulch was wet, messy, and in the winter, cold.
In the end, I think paper is the best substrate choice out there. I've used several things on a number of different python species, but I always come back to paper.
Concerning humdity, I don't do anything to artificially raise the humidity in my snake room. I heat it to 85 or so degrees and that's that. No shedding problems, nothing like that to speak of.
RP