water droplets hanging around when the sun shines,

I have a wondrous vision of thatched cottages spontaneously combusting
on the appearance of a rainbow.

I heat my house with a strawburner and and struggle daily to light the
stuff. You have to cut the bands and fluff it up a bit to get it to
catch. And burried under a goodly layer of lime plaster I can't see
fire being an issue. Compacted straw burns very slowly. In a major
house fire the straw would just smoulder for hours and not produce
toxic smoke in the way that some modern building materials do.

I don't imagine rats and mice are a much greater problem than
traditional building methods either. Modern combines don't leave much,
if any, grain in the straw and while the material provides a cosy home
so do cavity walls and suspended floors.