A friend told me that you can't put shredded paper in with paper to be recycled. Is she right? And what can i do with the stuff if she is!

We use our shredded paper as bedding for the guinea pigs!

Put it in your compost. As long as you have some wet stuff (old veg peelings, grass etc), then the paper and any (unprinted) cardboard will soak up the lovely compost juice. Don't overload it though, or everything will dry out.