OK, dense-packed cellulose insulation is not a bad thing. Loose-packed cellulose is not a bad thing. The main difference between the two methods of installation is the particular purpose. Let me elaborate.
When a space that is already pretty airtight is filled, loose-packing will give you more insulating effect per pound, because it goes further in the same space. The r and u values are also somewhat better than dense-packing due to the higher trapped airspace. More air in between fibers equals more heat flow barrier.
When a space that has air infiltration issues (gaps around obstacles, cracks between chambers, convective channels or chases, etc.) needs insulated, dense-packing is the cure. The high velocity air that blows in the cellulose travels through these difficult-to-seal areas naturally. The cellulose travels with the air and gets lodged in all these air paths, effectively sealing them by way of injection molding. Once the leaks and voids are filled, the cellulose packs in behind the clogged airways, further sealing each chamber substantially. Resistance to airflow in older, leaky buildings can be increased by factors in the tens to hundreds of mm of water column, bringing effective leakage areas down 40-80%, sometimes more. At constant pressure, air leakage drops an order of magnitude or better (from 4 cfm before to 0.2 cfm after @ 0.3" w.c.)! This leak sealing effect adds to the added thermal mass and r-value of the insulation, tremendously reducing fuel costs. Not quite an air barrier, but a lot closer than the way things were before.
Tolerance to compaction is a critical property of cellulose. Unlike mineral based insulation, organic fiber is cellular in nature and inherently non-conductive. Trapped air between fibers is only one part of its insulating ability. Compacting cellulose insulation would ultimately reduce its R-value to that of wood. If we compact fiberglass to the ultimate degree, we would get the insulation performance of glass. When we need to get air sealing by tightly packing insulation, cellulose fibers retain their resistance to heat conduction and mineral fibers don't. Cellulose also absorbs moisture, wicking it away from specific leaky areas and spreading it out at lower concentrations, until it has a chance to dry out.
Either method of packing is acceptable in the general sense. Loose-packed cellulose tends to settle on its own over the years, kind of like snow. Not surprisingly, it doesn't lose much r-value during the process, but it does lose a little. That's OK, we can add more loose-pack in the unfinished attic later if needed. Not so in between wall studs: what's done is done. Until it gets re-done.
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