Yo Ho BenDover,
Cedar lining in a closet will not harm your babies, and as a matter of fact the cedar works great at keeping lots of different insects at bay. The concern is with cedar in a mulch mixed into the soil, or layed out on top of soil.
Used as a mulch it will hinder growth, and it has been said that used in a soil mulch mix it can hinder nitrogen uptake.
smoke in peace
KingKahuuna