I work for a company that makes both animal bedding and fuel pellets. Depending on where you are located, it may or may not be OK to use fuel pellets for horse bedding.
Bedding pellets are usually made using only kiln dried softwood (pine, spruce, fir etc.) fiber. The softwoods are far more absorbent of both liquid and odors than the mixed hardwoods often found in fuel pellets. Also, as someone else pointed out, hardwood pellets can contain black walnut which can cause laminitis in horses.
Some of this depends on where you are geographically and what type of fuel pellets are offered for sale. In areas where softwoods are prevelant (Canada, the Pacific northwest, New England), they are often used for fuel pellets as well. If the fuel pellets in your area are 100% softwood, then I don't see any reason why you couldn't use them for bedding. But in the eastern part of the U.S., where hardwoods are the most common species used for fuel pellets, I would steer clear of using fuel pellets for bedding.
I hope this helps.