The knitted blocks will stretch, you could sew a cotton fabric to them to help stabilize the blocks. I don't know if an iron on stabilizer would work for this or not...
The knitted blocks could be sewn on a square, leaving a border of the fabric around them, and you could sew the border area to the denim.
As to trying to quilt this? I may consider tying instead.
I think this is a very creative idea :D:D:D