Ok, call me timid but is it safe to use fibreglass insulation this way? Are there types of insulation NOT to use?

I have tried searching for other people asking this and have not found anything, hope this is not a FAQ.

I can't think of a reason why not, other than taking reasonable precautions to not handle or breathe it when building the stove.

You wouldn't want to use anything that would melt at high temps, or would break down in contact with the fuel. Fiberglass passes both tests.

You miught want to use gloves when you handle it. Experience in using fiberglass on various boats taught me that a little fiberglass "dust" and one may itch a bit. Think tiny slivers. The stuff isn't really toxic unless you were to get a lungfull of fiberglass dust. Just be reasonably careful. I've used a "ton" of the insulation in stoves with no ill effects.