Technically, Yes, you can still use it. Yes, it will take a charge. No, it won't explode 'just sitting there'.
Yeah, you can use it and everything will probably be fine it's not too puffy...
The over-conservative, safest, thing to do if you're not 100% sure about things is retire it from service.
My understanding of Li-Po battery puffiness and how it relates to failures (full disclosure, I'm not a chemist...just an engineer. If someone sees something wrong, correct me):
Lipos puff due to a buildup of gas (mostly hydrogen) that occurs when the contents (mostly lithium) in the battery breaks down due to damage (being over-discharged in this case). The envelope the lithium-polymer is stored in contains this gas and gets puffy. The puffiness of the battery is directly tied to how much of this gas has been generated and can be used as a SWAG to roughly determine how much damage it has undergone (that's why I say "It's not too puffy" above).
When too much damage occurs and too much gas is generated, the envelope can't contain it and vents controllably (if the gasses build slowly), or pops (if the gasses build too quickly). This releases the lovely flammable gas mixture. This alone will not cause a fire...just a stinky, caustic, cloud of chemicals.
If an ignition source is nearby (even a spark internal to the battery) you now have a fire (think Mini-Hindenburg). Since the gasses are pressurized inside the battery envelope and the heat from the fire causes even more gas to be generated, they can send out blowtorch like flames. Oh the humanity!
If you do decide to use it, follow all the normal battery charging precautions (you're already following these...right?):
1. DO NOT CHARGE UNATTENDED.
2. Charge in a flame proof container, away from anything combustible (I charge inside cinderblocks, on a cement floor, against a cinderblock wall).
3. DO NOT CHARGE UNATTENDED.
4. Make sure you're not overcharging/mis-charging (that should go without saying).