In my mind, encapsulating is probably the key. After all, there is formaldehyde in the glue used in plywood products and we all use those in our traditional builds. As long as you keep the outgassing to a minimum, it shouldn't be an issue (I hope).
"She who camps with me" and her sister both lived in manufactured homes/mobile homes/trailers (whatever you personally chose to call them) at one time or another. Both have developed asthma that they attribute to the formaldehyde in the cabinetry.
Shades of Katrina FEMA trailers.
I'm not ready to give up on the idea yet. My mind just can't give up the weight and thrifty build benefits. Plus, this past weekend sleeping in a tent in upper 40 degree temps reminded me why I built Itty-Bitty in the first place (when I was still a single). We both don't fit in Itty-Bitty and no amount of snuggling was going to keep us truly comfortable in a tent. Fifty pounds of blankets and quilts is not the answer either.

More research and modifications to interior finish plan before I get too far into it. Whichever way it goes, there is another light weight trailer build in my future. Big enough for two people and a maltese.