When one first hears of straw bales as a construction material often mold and decay, vermin, and out of control fires come to mind. This is because we are accustomed to seeing straw in conditions inappropriate to construction. Wood as well suffers from these same characterisitics if not properly treated.
In fact straw bales do not contain much air and when plastered are highly resistant to fire (unlike wood stud walls which contain a proportionately large air space.) This lack of air space also adds to its being vermin proof.
Wood and straw are both susceptible to mold and decay (see photo below) but suffer far greater losses when fear, and man's desire to control nature through technology, takes hold. Both wood and straw have high hygroscopic values. This rated value represents a material's ability to both absorb and pass on water vapor. For instance glass is near zero and wool is one of the highest (remember how your nice wool sweater keeps you feeling warm and dry on those damp cold days?) Straw rates higher than wood and thus has a better ability to pass water vapor on without letting it condense--unless someone puts a vapor barrier on it (tar paper, plastic, the dreaded "house-wrap.")
Direct water intrusion will rot any wall made of wood or straw, but the ocassional rain splatter and damp air will not harm it--UNLESS YOU APPLY A VAPOR BARRIER!
To allow for this natural breathing of a wood or straw wall a natural and breathable exterior should be applied; natural plaster for instance or natural shingle or wood lap siding. These materials will allow the straw to not only pass through water vapor, but to act as a "heat exchanger." When the air is cold outside fresh air continues to pass SLOWLY through the wall, but warms by the time it enters. The difficulty in trying to understand this is in thinking that "warmth" or "cold" is a thing which can be carried from one point to another. In fact "warmth" is the vibration of the molecules and "cold" their lack of vibration. When air passes toward the interior of the house it has a chance to start vibrating instead of entering as cold (non-vibrating) air. A wood wall can do this as well, but needs an insulation to fill the great voids between studs--usually fiberglass.
Straw has an "R" value of more or less 45. "R" is a term applied to a material's ability to insulate and is based on a standard unit of "1" equal to 1 inch thickness of wood. Quite simply then it would take 45 inches of wood thickness to equal the insulative value of a straw bale wall 18 inches thick.
The strength and rigidity of straw is still being studied, but in general it is understood that it's ability to compress is nearly infinite. It can crush and not reach a "breaking" point where a wood "stud" would have snapped. This is not to say that a building in it's entirety can survive such crushing or will retain structural integrity. The vital element in most straw bale constructions is the shear strength added by a well applied plaster or stucco coating. This application lends straw the rigidity and firmness that it otherwise lacks. Walls of bales stitched together and pegged together without a top plate tend to bend and wobble and flex when pressures are applied to them: much as do wood walls when the corner supports or connections to adjoining walls have not been fixed. For seismic standards this bending and flexing may be very important--as long as firmness can be granted from some means and, in this aspect, there are many ways to obtain this.
One of the most enticing reasons for most people to choose straw bales over any other form of construction is the ease of building with bales. Probably this is because so many of us played with LEGOs when we were children and we can relate to the system(!) There are still details which require a bit of time and know-how to pull off, like roof systems and window/door framings, but by the time one gets to thinking about this the house can be so well on it's way that the matter becomes a moot one.
Bales are made of what is normally a waste product and is often burned. Using bales saves this resource, helps employ our farmers, and cuts down on pollution. Every year new supplies of straw are grown and cut--as opposed to a thirty-year growth cycle for tree plantings--and the price of bales (even in areas where $5.00 is common) is a reasonable expense. Unlike wood, which forms only the support for the wall structure, the bales are wall, insulation, and lath for plaster.
In areas where bales are not available there may be other materials which make more sense--but if there are grain crops grown within a hundred miles of your locale, or transportation means are not a problem, then it's worth considering. Wood, of course, with all of it's government subsidies and ubiquitous distribution is available in nearly every part of the country for far less cost than any of the price we really pay for it's propagation.
The photo at the right details rotten 2x6 studs in a SW corner and lower wall of a 36 unit apartment building in Seattle, Washington. The building was four years old at the time of this photo. Notice the penetration of mold and rot down to within one inch of the interior shear-wall OSB. 
