Is it safe to encapsulate lead shot with epoxy?
You are correct in that lead is pretty inert, especially when encapsulated. I would only worry about proper disposal once you are done with it, and how you plan to shape it (since a drill or saw could cause lead to become airborne, hammering should be safer).

If you are worried about health and safety, perhaps a different metal could be used, though they're generally going to be more expensive than lead. Quickly looking at metal density tables, you may also be able to use tungsten (much heavier than lead).

Also, keep in mind that lead isn't that much heavier than other common metals. Lead is 11.3 g/cm^3 while iron is 7.8 g/cm^3 and nickel is 8.9 g/cm^3.

If you want something very dense, depleted uranium would be an excellent choice (except for the health concerns with respect to breathing or eating it and availability issues due to it being a controlled substance).

Gold is also pretty dense, and quite safe.