This paper presents the results of a study carried out on a small-scale 10 kW fixed-bed combustor fired by blended pellet fuels burning on a thin depth fuel-bed. The use of the thin fuel-bed may contribute to major advances in the introduction of low-cost, fully automated small-scale combustors by eliminating de-ashing mechanisms, and improving operating conditions. The pellets were made by pressing the mixture of finely ground lignite or its by-product (xylite) with wood chips. The xylite (woody lignite) and the wood chips are wastes produced during the production of lignite fuel and timber, respectively. Therefore, using these materials to produce the high quality pellet fuel contributes to environmental conservation. Water and calcium hydroxide suspensions were used as pelletising agents playing the role of binders. The major objective was to study the improvement of the quality of the blended pellet fuels in regard to their combustion and emission behaviours when burned on the thin fuel-bed. The ignition and combustion behaviour of the pellets were compared to those of conventional lignite briquettes. The study proved that the pellets on the thin fuel-bed ignited faster and had steady burnout. The emissions of NOx, SO2, CO and hydrocarbon compounds were comparatively lower than those from burning of lignite briquettes in a domestic combustor. The addition of calcium hydroxide suspensions played not only the role of binding together the raw material blends, but also provided favourable Ca/S molar ratio optimum for considerable reduction of the SO2 emissions. The need to reduce further the specific emissions of SO2 leads to exceeding the proportional value of Ca/S molar ratio, which lowers the calorific value of the pellets. Thermogravimetric studies helped in establishing the comparative pyrolysis behaviours of the lignite and wood chips.