I have totally done this in my rabbitry, except I used rabbit wool, instead of sheep's fleece.
Since wool
rabbits are generally plucked instead of sheared, the wool comes out in strands instead of a solid fleece, so I find it's easier to put it in burlap or plastic bags, flattening it out somewhat, then stapling it between the wall studs. I suspect a fleece would be easier, as it is usually in one piece, so could be directly applied between the wall studs.
So far, I haven't really had issues with vermin like
mice trying to make homes in the wall- at least that I've noticed, but I suppose it could be a potential issue. I also didn't treat/clean the wool beforehand, so there was bits of hay/shavings in it; however my rabbits aren't free range in a pasture like a sheep is, so one may want to clean it a little if it's too dirty.
Since I'm not very good at spinning, I'm always trying to come up with alternate ways to use the buckets of wool I accumulate every year, particularly ways to benefit the rabbits, since they're the ones producing it.