Hi Scoop,
I've been using cedar for years now, both KD and seasoned timber without any problems. I was once told by an old ship builder to seal it properly. I not sure what you guy's use in the US, but in Aust (OZ) I been using a marine two-pac timber sealer called EVERDURE by International. a coulpe of coats not only provides a hardend outer crust but also gives you a great smooth surface to paint over.
Karl
PS:
By the way this a great site for us lurebuilder, there's nothing like it in Aust