Kind of interesting, I Googled "Formaldehyde in quilting cotton/fabric" and found endless discussions about it in quilting groups, but not so much that might be considered factual.
After reading many of the articles, I'm more inclined to wash my bed sheets a dozen or so times than my quilting cotton! LOL
A couple of studies say that it takes multiple washings to actually remove the Formaldehyde and that polyesters contain far higher levels than cotton...stuff like curtains, sheets, carpets, etc.
So don't be breathing deeply anywhere in your house! Yuck!