As I was learning to quilt, I made several rag quilt for my grandbabies. I started out with low-loft poly but later went to just 3 layers of flannel. After a few washing, the seams had pretty much "ragged" together and rarely did I see a string from them. I didn't know about the potential hazzard it could pose either.
I think you just need to be very diligent with anything around babies. DD mainly used the blankets to cover Lexi and Gabe when they went outside or let them lay on the floor. Most often they were covered up in the house with receiving blankets.