Doesn't sprayed insulation tend to settle, leaving areas in the wall where there is no insulation?

Dry loose fill is commonly installed in walls. If you look at a bag of the product, you'll see a coverage chart that lists two types of thickness: "blown" and "settled." Because loose-fill sprayed cellulose insulation does settle once it has been blown in, the designed coverage of the insulation is based on the "settled" thickness.

Blown loose-fill cellulose is favored in attic applications because you can blow unrestricted depths of fiber to achieve deep coverage with very little labor. To save on cost, most installers use the same cellulose in walls; they avoid settling by blowing cellulose into closed wall cavities at a relatively high density (this is called the dense-pack process).

Dry loose-fill cellulose is not the only option for walls; cellulose insulation can be blown in with a wet spray application or a stabilized formula. Wet-spray cellulose, as the name implies, is mixed with water during installation so that it sticks when it’s blown into wall cavities. Stabilized cellulose contains a binder and is applied with a small quantity of water. The binder prevents settling, which can reduce the installed thickness of loose-fill cellulose insulation by as much as 25 percent. Recommended applications and installation methods for each formula vary depending on where in the home the insulation will be installed and whether the home is new or remodeled. Speak with a knowledgeable installer to get specific information for your home.

For more information:

You can read more about cellulose in an article from the University of Massachusetts, "Cellulose Insulation—A Smart Choice."

If you don't mind paying for access, there's also a useful article at BuildingGreen.com: "Cellulose Insulation: An In-Depth Look at the Pros and Cons."