I am not sure if this holds true to rats, but back when I was doing some research on mice, I had come across a lab report that said they had inbred a colony of mice. The started with an unrelated pair, then took a brother and sister from that pair and mated them, then took a brother and sister from that pairing and mated them. They did this 15 different times and never had a single problem with the inbreeding, though on the 16th round, they started having babies that were malformed. I'd imagine that rats would be something like this, though I'm not 100% sure.

As to the wood shavings.....definitely NOT cedar. It is my own personal opinion that you should not use pine, either, but most people here do. I strictly only use aspen. I tried carefresh (shredded paper) for a while, but a few of my rats had developed allergies to the dust in it, so I finally just went fully to aspen (which is also very dusty, but doesn't seem to affect them like the Carefresh did). Anyway, good luck with your colony.