Rehab Jan - The cold air return is a vent for pulling air out of the room to take back to the furnace. Usually the return is high on a wall opposite the floor register (warm air). This arrangement forces more air circulation for more even heating. The cold air is pulled into the furnace, heated, then pushed out the register. You have a little more energy efficiency since you're reheating warmish air instead of pulling in cold air to heat. It's best if the cold air returns are inside interior walls so you can maximize exterior insulation.
As with most things in life, various insulations have pluses and minuses. The main problem with blown insulation in walls is guaranteeing you've filled the whole space. Wires, etc in the wall may catch the insulation and leave a big gap. Also, is there damage to the dry wall to make openings for installation? You can see fiberglass filling the wall space during installation since it goes up before the drywall. One problem is workers who don't take care about their work may leave gaps around outlets,etc. Also the fiberglass may not fill the width of the stud space if the studs are slightly further apart than normal. One alternative is icyene (sp?) foam insulation. The foam liquid is sprayed on the wall and expands about 100 times. This fills every bit of space. Unfortunately it has to be installed by a trained contractor and is more expensive.
In your case I would go with fiberglass in the walls. Before the drywall goes on, go over the whole wall yourself to fix any gaps left by the installers. Also take a caulk gun and seal any cracks since moving air really ****s out the heat. And get a can of minimally expanding foam (Great Stuff is one brand) to fill narrow gaps that fiberglass won't fit. Be careful with the foam since it may be strong enough to bow studs around windows and doors. Put in one line of foam and give it time to expand. You can always come back to add more foam later.