The shop at 129 and 411 closed. There is another smaller shop between Vonore and Madisonville.
One thing you should check on is whether or not the Dragon's Tail has reopened. There was a major rock slide on the road on the Tennessee side that completely closed the road. To the best of my knowledge it is still closed. The Dragon's Tail can still be driven, but only from the North Carolina side.
As to quilt stores if you do get into Knoxville, there is Mawmaw's on Papermill Road and Gina's on Kingston Pike in far West Knoxville. There are a couple in North Knoxville, but I don't know anything about them.
I really don't know about where to stay, especially if the road is still closed. (I would think there would be places in Robbinsville.) I'll see if I can find out for sure tomorrow and send you a pm if I'm wrong about it being closed.
If you do decide to do the drive, you should also do the Cherohala Scenic Byway between Robinsville, NC and Telico Plains, TN. It is not as windy as 129, but there are some views off this road, especially the NC end, that are better than anything in the Smokies National Park.
Tell them to please be safe. Motorcyclists are killed on that road every year. I actually saw one go down just last year. A full helmet with face shield and chin guard is the ONLY thing that kept that person from some serious facial surgery. And as someone else said, weekends are especially bad.