A well-balanced pellet can provide the nutrition the animals need. Personally, there's been times I've fed nothing but pellets for over a year and the rabbits continued to thrive and flourish.
The only time I provide any type of bedding is 2 days before the due date to kindle, as they will soil the bedding and then eat it. Since rabbits tend to have a more sensitive digestive tract, compared to many other animals, they tend to be more prone to coccidia bloom, or an imbalance of other, unwanted gut bacteria. This is why bloat or gastroenteritis is so common in domestic rabbits and, the more contact they have with their fecal matter, the higher the risk of these outbreaks occuring.
Hay is definitely a good source of fiber, though, and can help keep up gut motility if it's clean & fresh. When I give them hay, I usually just give them
enough to consume in a short time, so it doesn't get soiled. For constant access to hay, many use a hay rack, or something that would keep the hay above the floor/ground to minimize contamination risks.
I would not
feed timothy hay as a sole source of food. From my reading, I found it lacks the protein level and trace minerals needed to thrive, so it would probably need to be fed as a component in a variety of foods if one chose to not feed a pelleted diet.
One of the best resources I've found for raising rabbits (for any purpose) is by joining the ARBA and getting the free guidebook that comes with the membership (and you don't have to live in the US to be a member).
In the last 20 years of raising rabbits, the guidebook has been the most valuable source of information, by far, that I frequently find myself going back to. (Disclaimer- I'm not affiliated with them in any way except for being a member, so get no personal benefits from encouraging fellow breeders to join. It's just been a great source of information to me and has helped me be successful with my rabbitry.)
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