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All I've heard is that drywall is cheap and economical and that's it's made of natural materials. However, I have come across literature that claims that it is not recommended at all. What are the reasons behind this?
From a sound (audio) perspective it is very reflective and will cause all sorts of problems for music reproduction. The material itself is now probably OK. As I recall there was some from overseas companies that contained chemicals that are not approved in the US. It was linked to a number of health issues (I can't confirm that though). Others may have more information on the subject.
If referring to room acoustics? As reflective as drywall can be in the mid range and high frequencies, I don't think it's too bad for bass frequencies, especially compared to concrete or block wall/ceiling boundaries. A friend of mine drywalled one side of his garage (studio) with 5/8" Sheetrock, attached to resilient channel. It was done with the intent to provide soundproofing to an adjacent room, but I was astounded at how much improved the bass response sounded after that install. You could walk up to the wall and push on it firmly and feel/see it push in slightly. Pretty neat lol.
That's true. Rooms with framed drywall construction are much better than rooms with brick, stucco, concrete or rock walls. The drywall panels vibrate enough that they absorb some of the bass frequencies, and so act a little bit like panel absorbers. But to Bruce's point, even that isn't enough if the room doesn't have more absorbent stuff in it. I've heard drywall rooms that had flutter echo so bad they sounded like a bird chirping, especially when given a transient signal like a hand clap. I do find that rooms with framed drywall construction and wall-to-wall carpeting with ample furnishings are usually pretty well behaved. They can be improved upon, sure, but I think most people in homes with framed drywall rooms have at least a good starting point. Many don't need additional acoustic treatments to sound good, especially when the sound system uses technologies that mitigate room acoustics problems. A directional loudspeaker that is properly placed will help minimize early reflection problems, and should create a tonally-uniform reverberent field. And flanking subs and multisubs will mitigate room modes and reflection problems in the lower end of the frequency scale.
Acoustics aside, I have heard many reports of drywall being associated with stuff that is bad for health. For one, you have to make sure that it is free of asbestos. Secondly, I heard many reports of toxic mold being associated with drywall, though I don't know the specifics. Stuff to look into.