No. The chimney is still sort of used.
There are ducts running in it, for the direct vent fireplace insert.

I just am leary of stuffing in the insulation. Worried that the exposed
surfaces will let of irritating fibres. I was told it is done iand as
long as the insulation is not disturbed, then it will be okay. But I
wanted to know if anybody here has done/heard this.

German Jerry wrote:
If you are looking to plug a fireplace flue I would think a chimney
plug would be the route to go. There is something called a chimney
pillow at http://www.chimneyballoon.us that should do the trick.