Drew, these are great points, and I agree that both ramial wood chips and bark mulch have their pros and cons.
We are not growing anything in wood chips. Everything is growing in the dirt. The wood chips is just mulch. We NEVER mix them with soil. It always stays on top. I think it is very important to state, as some folks may think otherwise. If we need to plant anything, the mulch is moved to the side of the bed. Once plants are established, it is moved back.
I went out to the garden yesterday and moved a 6" layer of wood chips mulch away to reveal the dirt underneath. It was quite interesting to see that the top 1" mulch layer was wet (we had about 30 mm of rain in the last 2 days, very heavy), the next 2" of mulch were totally dry! And the layer in contact with soil was very wet. There were quite a few worms just under the mulch, including baby warms. I counted 8 in 5"x5" area, just on the surface, I did not dig to see if there are more down there.
In our 3 year experiment with our herbal bed, I can certainly say that we see a noticeable increase in organic matter in the bed where we used wood chips. This year we added new layer of wood chips to that bed, as everything broke down 100%. I am so sorry I did not watch that bed over the years, as I was unwell, and neglected this herbs bed, so I cannot say when the wood chips breakdown finished. The soil there is so rich (and no fertilizer or amendment was applied, ever). The original soil was blue clay, the herbs were transplanted there temporarily, as a holding area, but then they got neglected. We could hardly scratch the soil surface to put the transplants in there back in 2010! The chips went there in summer 2011.
Now it is a forest of healthy looking stinging nettles, wormwood, and St. John Wort. Some stray mustard is also growing there happily. I am very happy with the bed and it will certainly stay there. As an experiment, we will continue not adding any amendment or fertilizers into the bed, only wood chips, and see how it goes. I also think that the herbs themselves helped to build the soil, so I am not sure how much of that were wood chips vs. herbs greens. But it is working!
By the way, 'green' wood chips already contain quite a bit of water. They also contain lots of nitrogen, which helps to break down the wood chips without supplementing with nitrogen (although adding more N will certainly help to speed up the process). As the wood chips break down, their water retention capacity increases.
We have a few natural 'hugel' stumps in our back yard, and a few fallen trees that have been these for almost 10 years, they were not buried and hence were exposed to the elements. They are in various stages of decomposition. We examined them carefully and found the rotten logs to be very moist despite very dry spell we had in the last month. They are like a sponge!