Sheet rock doesn't magically appear from nowhere.
It has to be manufactured and shipped. The old sheet rock must be hauled to a landfill, along with the old insulation.
In older homes there are issues of lead paint dust and possibly asbestos which is present in vermiculite insulation along with some other older types of insulation. This is especially true of homes built between 1950 and 1980, when vermiculite was widely considered a wonder material. (Vermiculite can easily be recognized by the fact it consists of small puffy nuggets, as described in this link:
http://doityourself.com/home-safety/asbestosinhome.htm).
I think a matter like this is worthy of some reflection and thought, especially if one has children. In some cases, the consumerist ideal of "out with the old and in with the new" is not particularly environmental.
It is not always a good idea to keep one's home too tightly sealed, Tom Ridge's wonderful idea involving duct tape and the poison gas scare stories in the early days of the terrorist panic nowithstanding. (Tom, if you remember, was very unconcerned with oxygen depletion, since the organ most effected by hypoxia is the brain, and organ that was not of particular importance to him.) In my area, western New Jersey, it can certainly be a double edged sword to be too tightly sealed because of our problems here with radon gas. We have very high uranium loads in our soils and bedrock here.
One of the more wonderful ideas for energy conservation is to live in a smaller house. Another is to put bookcases up against the wall and fill them with books, which insulate quite well. Unlike the tight seals recommended by Tom Ridge, books are good for your brain, but only if you occassionally use them for some other purpose than as insulation.
There are certain types of insulation that can be blown into walls. I don't know very much about what it is chemically but it may be a preferable approach.