I love the butterfly. It could be used as a decoration, a blanket, or a playmat.
I also like the pillowcase idea. How about taking it one step farther and making a soft comfy pillow (throw size) and then making a slip cover for it with their names (could be removed and washed). I don't know about your little ones, but mine love to drag their favorite blanky and pillow everywhere. Especially on over-night trips, say....to Grandma's.....
More quilts can be made throughout the years. I'm planning on making my daughters some for their hope chest. The old tradition was to have 12 done before you got married (or was it 13?) I have a while before that though, thank the good Lord!