The problem, as I understand it, occurs when DU dust gets inhaled. It adheres to the interior surface of the lungs and sinuses, and directly irradiates sensitive tissue. DU itself is not terribly radioactive, but when it gets stuck in there, it STAYs there, because it's so fine-grained. This is where the problems come in.
As for Tungsten-Carbide; it's good stuff, but not as good as DU for punching holes in things. DU is heavier, and unlike TC, it self-sharpens when it passes through an object: this is part of where the super-fine dust comes from. TC flattens out against a hard object, DU literally gets sharper as it punches through.
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