Interesting. I suppose if it was encased in plastic, it could work. Think of a mushroom. You've probably seen them on a salad or in a restaurant before. Now take several hundred mushrooms, add some "organic/bio" adhesive, then compress them together into a block. That's essentially what this stuff is that we looked at. It works great; just like styrofoam for thermal insulation inside a cardboard box. I don't see any structural integrity though; that's why I think it would need to be encased in a plastic shell (think of a two liter soda bottle type plastic shell).
This may not be quite so green, but what about recycled styrofoam? I've found the very few bits I end up with impossible to get rid of, except in the garbage - none of the local recyclers want anything to do with it. Given the amount of the stuff around, there's gotta be a supply that could be reused as packing material.
Waterproofing card board could potentially affect recycling of it later on. What makes styrofoam great for packing, makes it to expensive to recycle. It's too light and bulky to ship back. It has to be compacted, with a special machine, or it just takes too much fuel to ship it alone. Packing peanuts do get reused at work, but I've noticed most shippers have switched to the 'bags of air'.