If it wasn't for the radioactive fallout, it wouldn't have been a bad idea. It took time to understand how bad the fallout was. And perhaps ultimately, we came to an overestimate of how bad it is for various reasons... people are generally unaware that about 500 surface nuclear bombs have been set off for testing, and I think a lot of people would think that that is already enough to render Earth uninhabitable or something. (Although over the course of decades, not all in one construction project.) From a strictly rational perspective it is probably something that could be done reasonably, but, the world is what it is.
I think that you don't have fallout. You dig charges deep, the goal is to make huge caverns that you collapse and are filled with water? This is how I would do it anyway.
Rock is not very compressible. The cavities created by underground nuclear tests aren't that large: https://en.wikipedia.org/wiki/Underground_nuclear_weapons_te... . They did get surface subsidence, but maxing out at a scale of "over half a mile", and not terribly deep. To create "huge caverns", that volume still has to go somewhere, and when you're talking about vaporized rock that mostly means atmosphere or nothing, more often the latter. But at least they didn't always get fallout, that's nice.
