I've installed white cedar shingles on walls and red cedra on roofs on cape cod in the mid eighties. Most contractors were usin # 2's in them days. The 3-5" widths are pretty narrow but imo, will prove more reliable compared to some bundles that i installed having up to 11 " wide shingles that typically split and cup. On wider shingles like those we would use them for cutters and trim them down narrower for fillers when needed. Splitting the seams or joints using wider shingles is pretty much a gauranteed split as the shingles aren't exactly a flat smooth surface each course.

As long as your windows are flashed properly to where they would not leak if you went w/o any siding, you should be okay. You will probably want to consider a header "L" type flashing above the window similar to a brick application before running that course over. It would be similar to #4 on the link:

Here is a link that might be useful: window flashing

I don't know what part of the country you are in but we are in Oregon and this is what we were told by a couple of different builders who use cedar quite a bit. The Western Red Cedar is plentiful in our area so you see alot of it in the lumberyards and installed on homes. However the shingles do not age and weather well in our area. It can look awful after a year or so unless it is heavily stained and treated. We were told that if we were not going to stain and maintain we should look at using white cedar shingles as they are the ones that weather and age to a nice patina. Is it possible that the Canadian company is supplying white cedar and that would explain the difference in cost?

When left to age naturally,no stains/sealer, white cedar will age a fairly consistent grey whereas the red cedars will darken with shading of black as it ages. In new england, typically red cedar was a roofing only application with white cedar on the walls, commonly referred to as "sidewall shingling". On older homes you would sometimes see red cedar for the walls and roofs, but i dont ever recall seeing white cedar on roofs as red cedar is a more effective shingle concerning moisture penetration with the roof being the most important for protection or at least more of a concern than the walls.

We went through the same process and ended up with eastern white. We wanted the nice silver aging that comes with this type of cedar. We are also in Oregon so weather was a factor. On the issue of window trim, we also have many windows. I personally wanted all windows trimmed and think it looks great.
We are still under construction so these pics have siding and trim not finished yet.

Thanks to everyone for the responses and wonderful photo's.

I am near Seattle on the Puget Sound which is a marine environment. We do want to leave the shingles natural and would like for them to not darken. Oddly, most builders around here talk-up the red cedar shingles. But I have noticed like has been mentioned they do not weather evenly and seem to get darkly mottled.

It was brought to my attention that the narrow #1 shingles I had mentioned above may pose a problem for proper shingle overlap at critical window base/corner transitions and be difficult to orient on my homes lower flared corners. I am now thinking I should go with a white cedar shingle.

Can anyone reccomend a brand they are particularly fond of?