I don't think that the bees will care that much about the wood type. Be sure to make holes in the block deep enough for the bee species you want to encourage, otherwise you will get a disproportionate number of males produced. Bees reared at the open end of the block are more vulnerable to predation and parasitism.

I wouldn't use cedar, because it's aromatic for a reason....to keep the bugs out....I don't know for certain if bees won't use it, but why use it and find out later that your bees won't like it. I haven't heard anything about spruce being a problem.

I had a tough time finding untreated wood as well. The largest I could find was a 4" by 4". I don't know what type of bees you're after but this is how I drilled mine. Since I was going after Mason type bees I needed holes 5/16" in diameter and around 8" or 9" long. I cut the wood in 10" lengths and used a standard short 5/16" drill bit to get my holes started nice and straight and perpendicular. Then I switched to a 12"long 5/16" bit to complete the holes to the finished depth. This approach seemed to work for me, but since it was my first time I'll have to wait and see what happens.